Those discussed by Keefhr, then you should set your selling price based Don’t forget toĪdd a learning curve provision into your labor, depending upon yourįorecasted annual sales. You may also want to include the incremental increase in inventoryĬarrying costs expected as a result of your increased inventory levelsĭirectly resulting from manufacturing your new product. How much additional inventory you incur as a result of your new product,

Manufacture of your new product, don’t forget to include some provisionįor anticipated rework labor for raw material, WIP, and finished good When calculating the direct labor required for In commodities pricing for copper used in producing your finished good,įor example). You included a cost adder for some expected rate of raw material scrap,įreight charges to bring the raw material in-house, and a provision forĪny expected / anticipated raw material price variations (fluctuations As part of your raw material cost estimate, I hope Rebates, cash discounts, product discounts, warranty liability, and Variable marketing / sales-related costs incurred as a result of theĪddition of any new product. Lines, you will always have the same fixed costs. You are adding this new product to those produced on exiting production Influence discussions of profit potential.

That would be incurred as a result of adding this new product should Manufacturing and administrative costs have no bearing on the You would only be interested in the contribution margin resulting from

Manufactured on you existing manufacturing lines it would seem as though To determine the costs for producing a new product that can be To ascertain costing for a finished product however, if you are trying I am not familiar with the total circumstances from which you are trying If you need it real-time, most ERP systems these days allow you to run alternate costing scenarios in parallel with your “normal” costing process. Unless you have very dynamic input costs, you can always make the costing calculations needed to support Pricing only when needed. So, how many times do you want to calculate Cost of Goods Sold?įrom an operating efficiency perspective, obviously as few as possible, and try to keep your “normal” costing process fairly simple and as consistent as you can for B/S presentation and issuance of inventory to Income Statement. Similarly, using incremental cost is a good idea for evaluating contribution of a new product, but again, should not be used as the basis for calculating inventory carrying value. They are unrelated to the production process, therefore should NOT be included in unit-costing calculations for B/S presentation. in a pricing calculation, is perfectly fine, but you can not include them as part of your inventory carrying cost (at least under US GAAP or IFRS). Including Bad Debt provision, inventory carrying cost etc. I’m thinking here of things like I/T, and HR types of expense, or any building or land occupied by production operations, included initially as General Admin expenses. If you have a service element included in your Admin line, it is generally acceptable to charge based on usage (which can be estimated usage) for the share of service provided to production operations. non integrated) management reporting perspective does not necessarily fit with acceptable B/S presentation.įor Admin expenses unrelated to Manufacturing, and Selling Expenses, Promotion & Advertising, Research & Development, they should generally NOT be included in Cost of Goods Sold, but presented separately (or in aggregate) in the Income Statement.

What is acceptable from an off-line (i.e. One over-riding concern I would keep in mind is the presentation of inventory in your balance-sheet. Most ERP systems these days allow you to completely integrate the operations and Finance data related to inventory.

Promotion account expense or cogs