Lesson 8: Costing of Products (KM-08-KT08)

Lesson Outcomes

By the end of this lesson, learners will be able to:

  • Understand the concept of product costing
  • Identify different types of costs in a business
  • Explain direct labour costs
  • Understand how costing impacts business decisions

Lesson Overview

Costing of products involves calculating all expenses required to produce a product or deliver a service.

It helps organisations:

  • Set prices
  • Control expenses
  • Maximise profits

In RPA environments, costing also applies to:

  • Automation implementation
  • Maintenance of systems
  • Resource allocation

👉 If you don’t know your costs… your profits are just a guess.

 

1. What is Product Costing?

Product costing is the process of determining the total cost involved in producing a product.

Includes:

  • Labour
  • Materials
  • Overhead costs

The goal is to understand how much it actually costs to create value.

2. Types of Costs

1. Direct Costs

Costs that can be directly linked to production.

Examples:

  • Raw materials

  • Direct labour

2. Indirect Costs (Overheads)

Costs that are not directly tied to a single product but support production.

Examples:

  • Electricity
  • Rent
  • Equipment maintenance

👉 Direct = easy to trace
👉 Indirect = necessary, but harder to track

3. Direct Labour Costs

Direct labour costs refer to wages paid to workers who are directly involved in production.

Example:

Workers operating machines to produce goods are considered direct labour.

These costs are directly linked to output and can be measured easily.

 

4. Importance of Costing

Costing is essential for:

Pricing

  • Ensures products are priced correctly

Profitability

  • Helps determine profit margins

Budgeting

  • Assists in financial planning

Decision-Making

  • Supports strategic business decisions

👉 Price too low → losses
👉 Price too high → no customers
Balance is everything.

5. Costing in RPA

In automation, costing includes:

  • Development of bots
  • Software licensing
  • Maintenance and updates
  • Infrastructure costs

Why It Matters:

  • Helps justify automation investments
  • Ensures return on investment (ROI)
  • Prevents overspending

👉 Automation saves money… but only if you manage costs properly.

Key Takeaway

Understanding costing helps organisations:

  • Control expenses
  • Set competitive prices
  • Maximise profitability

It is a critical part of sustainable business operations.

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