MODULE 3 PART 2: Marketing Aspects of New Ventures (Costing) Flashcards
Process of allocating to various aspects of a business.
- Costing
This cost is associated with making a product to be sold.
- Product Cost
(3) Main Components of Product Cost:
- Direct Material
- Direct Labor
- Manufacturing Overhead/Overhead Costs
These are the raw materials or components used directly in production process. Examples of this are wood, metal, plastic, fabric and chemicals.
- Direct Materials
This refers to the cost of labor involved in producing a product. It includes wages, salaries, and benefits of employees.
- Direct Labor
These are expenses related to the production of a product. It typically includes cost of machinery and cost of operating the machinery.
- Overhead Costs
(3) Indirect Costs included in Overhead Costs:
- Indirect Materials
- Indirect Labor
- Other Overheads
Refers to supplies and materials used in the production process but not visible to the final product. Examples are glue, oil, tape, and cleaning supplies.
- Indirect Materials (Overhead Costs)
Refers to the work performed by individuals not directly engaged in producing goods like security guards, drivers, and legal advisers.
- Indirect Labor (Overhead Costs)
This include any additional factory overhead costs that do not fit the abovementione categories.
- Other Overheads (Overhead Costs)
Formula for Calculating Product Cost:
Product Cost = Direct Materials + Direct Labor + Overhead Costs
Formula for Calculating Product Cost per Unit:
Product Cost per Unit = Total Product Cost / Number of Units Produced
Steps in Calculating Product Cost:
- Organize production expenses according to the particular product.
- Calculate total cost of direct materials.
- Calculate total cost of direct labor.
- Calculate total overhead costs.
- Add all costs together to get the production cost
- Calculate cost per unit by dividing total product cost by the total number of units
Method used to determine the cost of providing a specific service.
- Service-costing or Operating Costing
Business commonly using Service Costing:
- Hotels and Lodging Facilities
- Beauty and Lifestyle Services
- Educational Institutions
- Healthcare Facilities
- Electricity and Water Supply Services
(4) Types of Expenses in Service Cost:
- Fixed Costs (same as Direct Labor & Overhead Costs in PC)
- Semi-variable Costs
- Variable Costs (same as Direct Materials in PC)
- Unit of Measurement
Expenses that do not change regardless of how much activity in the business is doing. It includes rent, lease payments, salaries, utilities, bills, insurances, and loan repayments.
- Fixed Costs
Consists of both fixed and variable costs. Labor costs are usually divided into semi-variable expenses.
- Semi-variable Costs
Subject to change depending on the number of units produced.
- Variable Costs
Refers to the standard method used to measure the quantity or volume of a particular service provided.
- Unit of Measurement
Formula for Calculating the Total Service Cost:
Total Service Cost = Total Fixed Cost + Total Semi-variable Cost + Total Variable Cost
Formula for Calculating Total Service Unit:
Total Service Unit = (Variable 1) x (Variable 2) x (Variable 3)
Steps in Calculating Service Cost:
- Identify total service unit by multiplying all variables
- Calculate total fixed cost related to service
- Calculate total variable cost
- Calculate total semi-variable cost
- Calculate total service cost by adding all costs together.
- Divide total service cost by total service unit to determine the cost per service unit
