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Product Costing Systems MCQs FAQs
A product cost is a total cost of producing a good or service. This includes the costs of materials, labor, and overhead.
The main components of a product cost are direct materials, direct labor, and manufacturing overhead.
To calculate the product cost, you add the direct materials cost, the direct labor cost, and the manufacturing overhead cost.
It is important to accurately calculate product costs because they can impact pricing decisions and profitability. If a company underestimates the cost of producing a good or service, it may sell them at a loss. Conversely, if a company overestimates the cost of producing a good or service, it may be uncompetitive in the market.
There are many ways to reduce production costs. Some common methods include reducing the number of materials used, automating production processes, and streamlining operations. By reducing the number of materials used, automating production processes, and streamlining operations, companies can reduce their manufacturing overhead costs. This, in turn, reduces the product cost.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.