Product Costing Project

Product Costing Project

Develop the full cost of a simple item.

• Choose a simple, everyday household item (i.e. loaf of bread, fabric placemat, broom) to investigate its full cost.
• Describe the product and why it was chosen.
• Identify all direct and indirect materials used in production.
• Identify the different production stages and the labor requirements for each stage.
• Calculate the overhead.
• You will use the material, labor, and overhead amounts to calculate the production cost per unit.
• Find the selling price for your product.
• Assumptions:Production will be in your personal kitchen or workshop, therefore no rent expense will be incurred.Use the fixed amount of $150 per month for the additional utilities expense that will be incurred in the production of your product. No additional major machinery/equipment will need to be purchased. Small tools and equipment such as hammers or cookie sheets may be lumped together. They will be considered to have a limited one-year life with no salvage value.The labor cost is $10 per hour.Assume no indirect labor.
• Requirements:Complete spreadsheetWritten portion of the project should be 5-6 pages, including the spreadsheets (but not including the cover page) and the following information.Why was the product chosen?How cost was derived (where materials were obtained, etc.)?How was the price determined?iv.Why should your classmates purchase your product? (Sell it – this part should be fun!)

Product Costing Project
Name(s): ___________________________________________________________________________
1) What is your product?
2) Find the direct material cost.
Direct Material
Example:
flour
Size of Package
5 lbs/22.5 cups
Cost for Entire
Container
Unit Size
Cost per Unit
$2.50
1 cup
$0.11
3) How many units will be manufactured per production run?
4) List amounts of all direct materials used in production per production run.
Direct Material
Example:
flour
Cost per Unit
(from part 2
above)
$0.11
Quantity Used
per Production
Cost per
Run
Production Run
2 cups
Total direct material cost per production run
$0.22
5) List amounts of all indirect materials used in production per month.
Indirect Material
Example:
paint
Size of Package
Cost for Entire
Container
Amount Used
per Month
Cost per
Month
5 gallons
$20.00
1 gallon
$4.00
Total indirect material cost per month
6) List all small tools and equipment tht must be purchased.
Small Tools and Equipment
Cost
Total cost of small tools and equipment
7) What are the labor requirements?
Hours per
Production
Run
Production Stage
Labor Cost
per Stage
Total labor hours per production run
Total labor cost per production run
8) How many production runs per month?
9) What are the estimated labor hours for the entire month?
10) Find the estimated manufacturing overhead costs for a month:
Estimated Manufacturing Overhead Costs
Utilities
Indirect materials (section 5)
Small tools/equipment monthly depreciation (compute using section 6 information)
Total estimated monthly manufacturing overhead cost
Cost
11) Using labor hours as the activity base, find the overhead application rate.
Total estimated monthly manufacturing overhead cost (section 10)
Total estimated monthly labor hours (section 9)
Overhead application rate
12) Find the applied overhead per production run
Labor hours per production run (section 7)
Overhead application rate (section 11)
Applied overhead
13) Find the product cost
Direct Materials Cost per production run (section 4)
Direct Labor Cost per production run (section 7)
Applied Overhead per production run (section 12)
Total product cost per production run
Units manufactured per production run(section 3)
Unit Cost
14) Pricing Decisions
Be sure to include how the product will be packaged (how many per package, etc.)
How did you arrive at the selling price?
Selling Price
15) Convince your classmates to purchase your product (sell it!)
16) Any additional comments?
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