Product costing
 

is there any formula for doing costing of a product in a same work
sheet
considering all overheads..

plz any one guide

lakshminarayana

Product costing
 

More information i.e. an example, is required if you want a considered reply.

What are all your overheads ... Materials, labour, marketing, selling etc ?

"Lakshminarayana" wrote:

is there any formula for doing costing of a product in a same work
sheet
considering all overheads..

plz any one guide

lakshminarayana

Product costing
 

There is no built-in function to specifically calculate product costing. As
Toppers has said, specifics of the overheads involved is needed, plus an idea
of how you apply those overheads to the product. Some overheads are not
applied to some pieces of the puzzle. Example: the overhead involved with
storage costs (warehousing) would be applied against the product cost, and
the overhead involved with shipping would similarly be applied against the
basic product cost, but NOT against the result you got after applying
warehousing cost to the product. But your profit margin is going to (most
likely) be applied against the total of all costs when all of that is added
up.

Simple example using the 3 overheads I just mentioned:
A1 $100 [basic cost of product]
B1 =A1*.1 [$10 for 10% cost for warehousing]
C1 =A1 *.08 [$8 for 8% cost for shipping]
D1 = A1+B1+C1 [total of all costs ]
E1 = D1*1.25 [25% profit desired - displays as $147.50]

That's a very simple example, more complex situations may call for more
calculations involving direct and indirect costs (direct labor, indirect G&A
and when discussing labor costs for pricing services, then direct/indirect
fringes come into play and don't forget the 'cost of money' that usually goes
into an indirect somewhere).


"Toppers" wrote:

More information i.e. an example, is required if you want a considered reply.

What are all your overheads ... Materials, labour, marketing, selling etc ?

"Lakshminarayana" wrote:

is there any formula for doing costing of a product in a same work
sheet
considering all overheads..

plz any one guide

lakshminarayana

Product costing
 

"JLatham" <HelpFrom @ Jlathamsite.com.(removethis) wrote...
....
. . . But your profit margin is going to (most
likely) be applied against the total of all costs when all of that is
added up.

Simple example using the 3 overheads I just mentioned:
A1 $100 [basic cost of product]
B1 =A1*.1 [$10 for 10% cost for warehousing]
C1 =A1 *.08 [$8 for 8% cost for shipping]
D1 = A1+B1+C1 [total of all costs ]
E1 = D1*1.25 [25% profit desired - displays as $147.50]

Wrong!

Multiplying D1 by 1.25 sets the profit MARGIN at 20%. That is, 25% MARK-UP
produces 20% profit MARGIN. D1 returns 118. E1 returns 147.5. The difference
between them is 29.5, and 29.5 / 147.5 = .2 .

Lookup the term 'profit margin' on any web site or business textbook you
like. You'll find something like

Profit Margin = Net Income / Revenue

[from http://www.investopedia.com/universi...ofitmargin.asp ]

The key point here is that revenue *INCLUDES* the profit, or net income.

The correct profit MARGIN calculation is

E1: =D1/(1-0.25)

Essential to understand the difference between profit MARGIN and MARK-UP.
Margin can NEVER exceed 100%. Mark-up can.

Product costing
 

Ah so. We just stick in a much smaller number than 25% - (we're in a pretty
cut-throat business) and call it Profit actually. Guess it's a good thing
I'm not in our accounting dept?

"Harlan Grove" wrote:

"JLatham" <HelpFrom @ Jlathamsite.com.(removethis) wrote...
....
. . . But your profit margin is going to (most
likely) be applied against the total of all costs when all of that is
added up.

Simple example using the 3 overheads I just mentioned:
A1 $100 [basic cost of product]
B1 =A1*.1 [$10 for 10% cost for warehousing]
C1 =A1 *.08 [$8 for 8% cost for shipping]
D1 = A1+B1+C1 [total of all costs ]
E1 = D1*1.25 [25% profit desired - displays as $147.50]

Wrong!

Multiplying D1 by 1.25 sets the profit MARGIN at 20%. That is, 25% MARK-UP
produces 20% profit MARGIN. D1 returns 118. E1 returns 147.5. The difference
between them is 29.5, and 29.5 / 147.5 = .2 .

Lookup the term 'profit margin' on any web site or business textbook you
like. You'll find something like

Profit Margin = Net Income / Revenue

[from http://www.investopedia.com/universi...ofitmargin.asp ]

The key point here is that revenue *INCLUDES* the profit, or net income.

The correct profit MARGIN calculation is

E1: =D1/(1-0.25)

Essential to understand the difference between profit MARGIN and MARK-UP.
Margin can NEVER exceed 100%. Mark-up can.