cost is marked up because this pricing decision aims at maximizing profits of the business until marginal revenue equals marginal cost. 2.When goods are completed in one process, they are transferred with their costs to the subsequent process. The approach may sometimes give misleading information due to overestimation of costs. It is important to note that the benefits are also sacrificed with the opportunity that is given. Fourthly, it was found that other companies are currently practicing cost allocation for the purpose of practicing proper accounting of products' full costs and even determine the cost-based price of the product. The topic states that is product costing important for virtual organisations that are outsourcing their production operations. This can help managers track new customers and products in the market. Secondly, the process of obtaining this additional cost information is costly hence highly preferred.
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Direct labor includes payroll for assembly line workers but it does not include cost such as wages for factory janitorial services which is not directly related to the product being made. This means that they must put previous cost consideration in the price tag of the product. Calculating the unit cost by dividing the costs of the period by the units produced during the period. This would generally include direct material, direct labor and the variable portion of manufacturing overhead. That is, each unit in each process receives a similar share. These costs can include raw material purchases, worker wages, production transportation costs and retail stocking fees.