Production Cost Calculator
Calculate unit production cost from materials, labour, and overheads.
Calculator
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Total batch cost: ₹95,000
Unit cost: ₹190.00
Formula
Unit cost = (Material cost + Labour cost + Machine cost + Overhead) / Number of units. Overhead rate = Total overhead / Direct labour hours × labour hours per unit.
Example calculation
Batch of 500 units: material ₹50,000, labour ₹20,000, machine ₹10,000, overhead ₹15,000. Unit cost = (50,000+20,000+10,000+15,000)/500 = ₹190/unit.
Engineering notes
Always separate fixed and variable costs. Fixed costs per unit fall as volume increases; variable costs are roughly constant. Use marginal costing for short-run pricing decisions and absorption costing for P&L reporting.
When to use this calculator
- Product pricing — set selling price by adding desired margin to calculated unit cost
- Make-or-buy decisions — compare in-house production cost with vendor quote
- Cost reduction — identify the largest cost component to focus improvement efforts
- Quotation preparation — build accurate customer quotes for manufactured items
- Budget variance analysis — compare actual vs planned unit cost each month
Frequently asked questions
- What is the difference between direct and indirect costs?
- Direct costs can be traced specifically to a product: raw materials consumed, direct labour hours worked on that product, machine time used. Indirect costs (overheads) cannot be traced to a single product and must be allocated: factory rent, supervisory salaries, electricity for lighting, maintenance. The allocation method (labour-hour rate, machine-hour rate, ABC) affects the calculated unit cost significantly.
- How do I allocate overheads to unit cost?
- Common methods: (1) Labour-hour rate — overhead per labour hour × hours per unit. (2) Machine-hour rate — overhead per machine hour × machine hours per unit. (3) Percentage of material cost — useful for simple job shops. (4) Activity-based costing (ABC) — traces overhead to activities, then activities to products. For most small manufacturers, a machine-hour rate gives the most accurate allocation.
- What margin should I add to arrive at a selling price?
- Margin depends on your industry, competition, and strategy. Typical industrial manufacturing: 10–20% net margin. Job shops and fabricators: 15–30% gross margin. High-value custom engineering: 25–40%. Always distinguish markup (% of cost) from margin (% of selling price). A 25% markup = 20% margin. Use margin for revenue planning and markup for pricing calculations.