Product costing is a form of accounting that focuses on the actual costs of producing a product.

This includes the consumption of raw materials, costs of labor, and overhead allocated to the production of a single product.

This is useful for businesses to compare the costs of individual products and goods produced, analyze which product is the most cost-effective and the overall impact on the company. And also, for the excuse to buy ERP software.

At this point, many ERPs can break down the product costing process into manageable steps and formats for presentation and analysis.

Most products costs are divided into two categories: direct and indirect. As you may have surmised by the literal words, a direct cost is directly involved with the manufacturing process. In contrast, indirect costs are things like overhead and procurement.