Product cost

Product cost
Primary topic
Related topics
Methods and techniques

Produkt cost includes costs that are directly related to the product and a reasonable part of the costs indirectly associated with the production of this product.

A good cost estimation has a direct impact on performance and efficiency of a business enterprise. This may result in the loss of the company and goodwill on the market or large losses for the company. Cost estimation is the focal point of design and operational strategies and a key agenda for managerial policies and business. Also the client's satisfaction in terms of low costs, high quality and product delivery on time play a significant role [1].

Types of product costs[edit]

At the cost of producing the product (product cost) consists of the following items[2],:

  • direct materials
  • purchase costs,
  • own semi-finished products,
  • fuel and technological energy,
  • direct wages,
  • other direct costs.

Fixed vs. Variable Cost[edit]

Fixed cost - cost that the company incurs even during the period in which production is equal to zero. They remain unchanged (constans) for a wide range of activities over a period of time and may change over time, eg due to a change in macroeconomic conditions. Typical factors affecting the change in the level of fixed costs include, for example: changes in the organization of the enterprise, changes in the technology used, sales of machinery and production equipment

Variable cost - the cost the entrepreneur incurs for activities directly related to production. Resources that the company uses, for example: machinery, buildings or human resources [3].

Cost estimation techniques[edit]

  • Algorithmic technique
  • Fuzzy logic approach [4].

References[edit]

Footnotes[edit]

  1. Product Cost Estimation: Technique Classification and Methodology Review, MAY 2006, Vol. 128/ 563
  2. Direct materials deposition: designed macro and microstructure (1999)
  3. How cost accounting distorts product costs, Apr 1988, p.20
  4. Manufacturing cost modelling for concurrent product development, (2001) p.347


Author: Paulina Ściera

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