Different Ways to Calculate Cost

There’s more than one way to figure out product costs. Different industries use different methods based on what makes sense for them.

Common Costing Methods

• Job Costing: Used when products are custom-made (e.g., shipbuilding, construction).
• Process Costing: Used for mass production (e.g., food manufacturing).
• Batch Costing: Used when products are made in batches (e.g., clothing).
• Activity-Based Costing: Assigns overhead based on activities (e.g., customer service hours, machine setups).

Choosing the Right Method

The choice depends on product type, production style, and company needs. For example, a car manufacturer will use process costing, while a consulting firm uses job costing.

Application in Business

Using the right costing method ensures accurate pricing and profitability analysis.