How to Cost Products and Services

How to Cost your Products and Jobs
The basic requirements when costing involve:

1. Working out the actual direct costs of the job or product you are making.
2. Adding on to those costs an extra charge to cover indirect expenses, such as overheads etc.

Briefly, there are 3 main types of costing and manufacturing systems:

1. Standard costing.
2. Process costing.
3. Job costing.

1. Standard Costing:
In general, process costing and job costing are based on the expenses that the business has spent in the past. This means that the cost can only be determined at the end of a particular period when it is generally too late to do anything about the cost. It means the business will have a weakness and will find it difficult to control inefficiencies, or monitor if things are not going according to plan. This dependence on historical cost is a real disadvantage with job costing and process costing systems.

One way to overcome this is to install a standard costing system. Under this system the business will use predetermined standards for each port...