Determination of Product Cost in a Steel Plant...

Determination of Product Cost in a Steel Plant The term ‘product cost’ means the amount of expenses [actual or notional] incurred on or attributable to the production of the specified product. Product cost refers to the costs used to produce the product. It is the measurement in monetary terms of the amount of resources used for the purpose of production of the product. For effective monitoring, specific product cost (cost per unit of product produced) is usually determined. A steel plant consists of several processes which are integrated. These processes produce many intermediate products as well as semi-finished and finished products. Many of intermediate products and semi-finished products along with all the finished products are saleable products. There are also a large number of by-products which are being produced from these processes. These by-products are used either internally within the plant or are being sold to different customers. In such a situation, the cost of the saleable products is determined in the steel plant in several stages. Each stage has a product for which the cost is determined. This product may be a saleable product or may be an intermediate product used as a raw material for the next stage. In case the intermediate product of a certain stage is the raw material for next stage then the determined cost of the product along with the cost of handling losses for the product is assigned to the next stage to the extent the product is consumed in the next stage. The product cost in a steel plant is determined the way it is done in any other manufacturing organization. The total cost of producing a product basically consists of two components (Fig 1) namely (i) fixed cost, and (ii) variable cost. Fig 1 Component of...