How to determine cost of a product or service

A response to the Like Driving a Car Activity
created by Peter Sheedy (@PeterS)

Number of views: 157

The component skill would be how to calculate the cost of a product or service.

To do this you must:

  • Understand how cost is measured (basis of accounting)
  • Understand the theory of cost categories like direct and direct costs, raw material, labour, direct overhead, indirect overhead etc..
  • Understand how to apply that theory to real-world data through analyzing accounting data and through other information such as conversations with various departments such as manufacturing etc.. to apply these categories to costs; for example, which costs are direct, indirect or mix
  • Understanding how to perform various math calculations such as per unit and covert; between units of measure (ex. Lbs and KG); break down a fixed cost into a variable and fixed components
  • Understand and perform calculations around overhead rates

Once these skills are understood, you can then begin to complete costing calculations.

Example for "How to determine cost of a product or service":
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