Product costing is used to calculate the cost of goods sold and manufactured for each unit of goods manufactured.
It is used to keep the track of cost at each and every point of production.
Costing sheet , cost component, Activity types and cost elements are used for product costing.
Costing sheet is used for the overheads purposes.
Cost Component is used for the breaking of expenses into various cost elements for more transparency of the cost structure.
Activity types are defined as per cost center.
The cost component split will give the transparency on the cost incurred on different levels such as machinery set up cost, labor costetc.
BOM is used to know the quantity of the material used for the production. Routing is used to define the sequence of steps required to perform certain operations. For Eg How many labor hours will be required for a finished product etc.
The entries which flow for product costing are as follows:
For Material issue
Raw Material Inventory(Credit)
To Raw Material Consumption (Debit)
Respective cost center (Credit)
To Set Up cost (Debit)
Machining Cost (Debit)
Cost of Production (Credit)
To Inventory of Finished Goods (Debit)
Please note that this entry will come from MM module and at Standard Price.
Settlement Of Production Order
Cost of Production( Variance)
To Price Difference Account
Post goods Issued
Inventory of Finished Goods (Credit)
To Cost of goods Sold (Debit)