1. Introduction to Product Costing Kayann Moo Young Vanessa Preciado

2. Product Cost Review Direct Materials Direct Labor Overhead Cost of Goods Manufactured

3. Review Cost Terms Direct materials costs: Acquisition costs of all materials that eventually become part of the cost object (work in process and then finished goods), and that can be traced to the cost object in an economically feasible way. Direct manufacturing labor costs: include the compensation of all manufacturing labor that can be traced to the cost object in an economically feasible way. Manufacturing Overhead costs: all manufacturing costs related to the cost object but that cannot be traced to that cost object in an economically feasible way

4. Product Cost Example Chair Bear makes children’s furniture. It takes three workers to complete one desk chair. Worker 1 assembles the chair in 15 minutes. Worker 2 primes the chair in 8 minutes. Worker 3 paints the chair in 8 minutes. Each worker is paid $10/hr. The wood to assemble the chair costs $7 and the screws cost $2. The total overhead costs of the factory are $300,000. The allocation method is by labor hour. Total labor hours for the facility are 100,000 hours.

5. Product Cost Solution Total Cost = $9 + $5.10 + $1.53 = $15.63 Overhead $300,000/100,000 hrs = $3/hr ($3/hr)(.25+.13+.13) = $1.53 Labor (.25 hr +.13 hr +.13 hr)($10) = $5.10 Materials $ 7 + $2 = $9

6. Cost Analysis Equations Gross Margin = Price – Cost Gross Margin % = (Price – Cost / Price)* 100 Based on competition and desired profits we sell ours chair for $25.00 $25 – $15.63 = $9.73 Gross Margin ($9.73/$25)*100 = 37.45% Gross Margin %

7. Your turn Create a presentation for the manager of your company pitching a new product. The presentation should include: 1. Introduction of the product 2. Product benefits 3. Picture of the product 4. Cost of the product based on Direct Labor, Materials, Overhead 5. Price of the product 6. Gross margin of the product 7. Cost/Benefit Analysis

8. Presentation Guidelines The product may already exist or you may create your own innovation. The presentation may be done individually or in pairs. You will have 10 minutes to present to the class next week. Please see the class google doc for the rubric and to sign up for a presentation time.