Production Cost Calculator

Standard cost = Direct material + Direct labour + Variable overhead + Fixed overhead absorption. Fixed overhead per unit = Total monthly fixed overhead / Expected monthly production units. This becomes the benchmark for cost variance analysis and pricing decisions.

Overhead absorption rate = Total overhead / Absorption base (machine hours, labour hours, or units). Example: ₹2 lakh overhead / 1,000 machine hours = ₹200 per machine hour. Applied to each product based on machine hours consumed. Under-absorption means actual production was below plan; over-absorption means above plan.

Key strategies: standardise components across product variants, negotiate volume discounts on raw materials (typically 5–15% savings), optimise batch sizes to reduce setup frequency, implement preventive maintenance to reduce breakdown downtime, cross-train workers to reduce skill bottlenecks, and benchmark against industry peers.

Marginal costing: only variable costs are product costs; fixed costs are period costs. Used for management decisions like pricing, make-or-buy, and break-even analysis. Absorption costing: both variable and fixed costs are product costs. Required for financial reporting under IndAS and income tax. Both are needed — use the right one for the right decision.

Pricing formula: Total cost per unit + Target markup % = Selling price. For B2B industrial products, 15–25% markup is typical. For consumer products, 40–100%+ depending on brand and competition. Always check: does this price work in the market? Is my cost structure competitive with imports and larger manufacturers?