Product costing is the process of calculating how much it costs to manufacture one product. It is important for quotation, pricing, profitability analysis and cost reduction.
A factory should not depend only on market price or competitor price. It must know its internal cost. Otherwise, the company may accept orders that look attractive but reduce profit.
Basic product cost structure
Product cost generally includes material cost, labour cost, machine cost, overhead cost, tooling or consumable cost and rejection or rework allowance. After cost calculation, margin is added to decide selling price.
Material cost example
If a product requires 2 kg of material and material price is ₹120 per kg, material cost is ₹240. If there is 5% process loss, the material requirement and cost should be adjusted accordingly.
Labour cost example
If an operation requires 10 minutes of labour and labour cost is ₹300 per hour, labour cost for that operation is ₹50. If multiple operators are involved, the calculation should include total manpower time.
Machine cost example
If machine hour rate is ₹600 per hour and cycle time is 5 minutes, machine cost per part is ₹50. Machine cost becomes very important in CNC, molding, press, fabrication and automated processes.
Common costing mistakes
Factories often ignore setup time, inspection time, rejection, rework, packing, tool wear and indirect support. These small omissions can create major difference when production volume is high.
How Factovare helps
Factovare connects product details, cycle time, manpower, resource requirement and costing. This helps factories calculate cost using structured data instead of scattered Excel sheets.
Conclusion
Product costing is not only a finance activity. It is a manufacturing decision tool. Good costing helps factories quote correctly, identify cost drivers and protect profitability.