Cost Accounting

A product's real cost is not just raw material: labour, machinery, rent and overheads reach it too. Pricing without knowing cost leads to losses or missed opportunities. This page offers the basic cost accounting calculations, from production cost to break-even.

Which tool for which question?

• Cost of Goods Sold (COGS) Calculator and Gross Profit: Calculates cost of goods sold (COGS), gross profit on sales and inventory turnover from opening inventory, purchases, purchase returns, purchase costs and closing inventory.
• Production Cost and Unit Cost Calculator (Capacity Utilisation and Idle Capacity): Calculates production cost, unit cost, capacity utilisation and idle capacity cost from direct materials, direct labour and manufacturing overhead.
• Break-Even Point Calculator: Calculate the break-even point in units and revenue, the contribution margin and the sales needed for a target profit from fixed costs, price and variable cost.
• Margin of Safety Calculator: Calculate the margin of safety in amount and percent: how far can sales fall before you reach the break-even point?
• Fixed and Variable Expense Split: Total your costs as fixed and variable and see the fixed cost share. Enter revenue to also get the contribution margin ratio and break-even sales.
• Rent and Overhead Allocation per Item: Spread rent and overheads over the number of units to see the fixed-cost share per unit and the full unit cost.
• Depreciation Calculator (Straight-Line and Declining Balance, Turkish VUK): Calculates Turkish tax-law (VUK) straight-line or declining-balance depreciation from cost and useful life, giving the year's depreciation, accumulated depreciation and net book value.

How the calculation works

• Production cost = direct materials + direct labour + manufacturing overhead; unit cost = production cost ÷ units produced. Capacity utilisation also shows the cost of idle capacity.
• Costs are split into those that vary with sales (variable) and those that do not (fixed); this split underlies every other analysis.
• Break-even = fixed costs ÷ (unit selling price − unit variable cost); below that quantity there is a loss, above it a profit.
• Margin of safety = (actual sales − break-even sales) ÷ actual sales; sales can fall by that share before a loss.
• Cost of goods sold comes from opening inventory, purchases and closing inventory.
• Depreciation expenses the cost of an asset used for more than a year over its useful life.
• Rent and overheads are divided by units so every product carries a share.

Things to watch

• The fixed/variable split can be mixed for some items; separate them with a reasonable estimate.
• Unit cost depends on production volume; when volume changes, the fixed cost per unit changes.
• Enter cost excluding VAT before considering tax.