Costing covers how costs are applied and tracked. It provides information for setting up and using costing features with the Cost Management module, as well as using standard inventory functions.

Overview
Introduces costing concepts.

A key factor influencing whether a company manufactures a product is the cost of making that product. Costs also determine the level of production output.

The cost of producing at a specific level of output depends not only on the price of needed resources—materials, labor, fuel, transportation, and so on—but also on the quantities of resources needed to produce that output. The level of output also depends on how the company uses fixed resources, such as the size of the plant, in combination with variable resources, such as labor, material, or equipment. It is important to know the total cost of production at varying levels of output along with per-unit costs.

Direct costs are all costs that can be traced to a single product. This includes the cost of all material and direct labor that go into that product, as well as the cost for any outside processing. All production costs other than direct costs are considered indirect costs, or overhead. Overhead costs are classified as either fixed or variable.

Tracking these costs is important in determining product costs, total cost of production, inventory values, and productivity.