Cost of product
Main takeaways
Use it to calculate the product costs incurred by the company to create the product or deliver the service.
Identify how costs are distributed.
Step-by-step
Identify costs within the following categories:
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1. Direct Material
The raw materials directly used in manufacturing to produce the finished good.
2. Direct Labor
The employees or the labor force that gets directly involved in manufacturing finished goods from raw materials (salaries, wages, and benefits)
3. Factory Overheads
The indirect expense related to manufacturing a finished product that cannot be directly traced is referred to as the factory or manufacturing overheads. In other words, overheads are that cost that is neither direct material nor direct labor.
Formula
Product Cost Formula = Direct Labor + Direct Material + Factory Overheads
Factory OH = Indirect Labor + Indirect Material + Other Factory OH