![]() ![]() Let’s say that over the years of experience, business has learned that overhead cost is normally 1% of material cost and. Example of overhead cost Electricity, Wifi, cleaning cost, telephone bills etc. Overhead cost is the indirectĬost which is involved in producing finished product. How much is the overhead cost in producing finished product. Maintaining the list of all the activities and their respective quantities which are performed in producing finished product is referred as Routing. Hence, adding up the cost of various activities in order to arrive at making cost of finished product is referred as Activity Based Costing. Hence making cost of finished product depends upon which activity is performed in how much quantity in producing finished product. Hence if we calculate cost of each activity and add it up, we will arrive at making cost of finished product.Įach activity might have different cost associated with it. Each and every activity which is performed has cost associated with it. How much is the making cost in producing finished product? Making cost comes from activities that are being performed on materials to produce finished product.What materials and in how much quantity are consumed in producing finished good? List of all the materials which are consumed is referred as Bill of Materials (BOM). ![]() Now in order to estimate cost of any product, below information is needed Estimating the cost of a product is referred as product costing. ![]()
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