Product costing, term by term
Twelve terms that come up in every costing conversation, defined plainly and without a sales pitch.
Product lifecycle costing
Product lifecycle costing is calculating and steering what a product costs across its whole life, from the first estimate through development, sourcing and production to phase-out, rather than costing it once when the design is finished.\
Costing structure
A costing structure is what a costing is calculated on: the bill of materials or recipe, together with the routing or process steps that convert it. Material and ingredient prices value the first part, activity rates value the second, and the result of applying both is a costed structure.
Early cost estimation
Early cost estimation is calculating what a product will cost before it has a cost view — either because the costing structure exists but has never been joined to costs, or because there is no structure yet and the estimate has to be drawn by analogy to products already made.
Cost simulation
Cost simulation is recalculating what products cost under a changed assumption, such as a tariff, an exchange rate, a material price or an activity rate, so the effect on cost and margin is visible before it lands rather than after.
Where-used analysis
Where-used analysis finds every product in a portfolio that contains a given material, activity or supplier. It turns a single price or tariff change into a defined scope of affected products that can be re-costed together.
Product cost controlling
Product cost controlling is watching what a product actually costs against what it was planned to cost, explaining the difference, and closing it. It covers cost development over time, detection of where plan and actual came apart, and the measures assigned to bring them back together.
Target cost
A target cost is the cost a product has to reach for it to earn the margin the business needs at the price the market will pay. It is set from the outside in — price minus required margin — rather than built up from what the current design happens to cost.
Should-cost analysis
Should-cost analysis is working out what a product or component ought to cost, based on its materials, processes and volumes, rather than accepting the price a supplier quotes. It is used in negotiation and in sourcing decisions.
Quotation costing
Quotation costing is producing the cost and margin behind a quoted price, fast enough to meet the deadline and solid enough to defend afterwards. It has to cover what a company actually quotes, stay current as inputs move, and be reconstructable later.
Variant costing
Variant costing is calculating the cost of each version of a configurable product rather than of one representative version. Because variants multiply faster than anyone can cost them, the practical approach is to cost representative variants and infer the rest along the continuum between them.
Recipe costing
Recipe costing is calculating the cost of a formulated product from its ingredients, their proportions, the process steps that convert them and the yield of that process. The structure branches wider and nests less deeply than a bill of materials, but it is the same object to a costing engine.
Business case analysis
Business case analysis is deciding whether a product or contract is worth committing to, by laying time points, volumes, one-time costs and scenarios over its costing structure, building a P&L across its life, and resolving that into internal rate of return, net present value and payback.
