Overhead Cost Analysis
Overhead Cost: Rs. 18 million
% to cost of sales: 18%
Pricing strategy and price determination for any company highly depends on its product cost. Product cost comprises of raw material, labour and overhead cost and should be true representative of a product cost. A company is always in need to determine a costing method to measure its cost. Many companies prefer standard costing or relevant costing to assist them in determining price to earn targeted profits and margins.
ZA, having a deep understanding and knowledge on costing methodologies, accounting standards and management accounting was engaged by a listed company to verify and give assurance on charge out rate of their overhead cost with a check on relevance of overhead to the product cost. In provision of such services, ZA performed gap analysis and highlighted areas that required improvement and gave value added suggestions and recommendation that may help them to measure overhead cost as per relevant costing method, thus helping them in determining price and related strategies ultimately impacting their profitability. ZA covered around Rs. 18 million of the total overhead cost that represented 18% of their total cost.