Active learning ideas
Product Costing is the process of determining the total cost of making a single product or providing a service. Students learn to track Direct Costs (Prime Cost) and then tackle the more complex task of allocating and apportioning Indirect Costs (Overheads). This is a vital skill for any business to ensure they are pricing their products profitably.
Activity 01
Groups are given a factory floor plan and a list of overheads (Rent, Insurance, Canteen costs). They must decide which 'basis' (e.g., area, number of employees) is best for apportioning each cost and perform the calculations.
How are direct and indirect costs assigned to products?
Activity 02
Students are given a scenario with a machine-intensive department and a labor-intensive department. They must pair up to decide whether to use a 'Machine Hour' or 'Labor Hour' absorption rate for each and justify their choice.
What are the bases for apportioning overheads?
Activity 03
Using 'cost cards' (Materials, Labor, Apportioned Overheads), students must physically assemble the 'Total Cost' of a product, ensuring they include a percentage for profit to reach the final 'Selling Price.'
How is an overhead absorption rate calculated?
A few notes on teaching this unit
Watch Out for These Misconceptions
Overheads are just 'extra' costs that don't really matter.
Overheads can often be the largest part of a product's cost. Peer discussion about the 'hidden' costs of running a famous Irish brand (like marketing and factory insurance) helps students see their importance.
You can use any basis for apportionment.
The basis must be logical; for example, you can't use 'floor area' to apportion 'canteen costs' if one department has twice as many people in a smaller space. The 'Apportionment Map' activity helps students find the most logical links.
Methods used in this brief