Product costing software is an essential tool for manufacturing companies that want to streamline their business processes and improve profitability.
Developing detailed cost knowledge early in the product development cycle can help companies accurately determine the competitiveness and profitability of a new product.
In this article, we will discuss a few common product costing problems manufacturers deal with, as well as share 4 benefits of product costing software you may not be aware of.
Common Product Costing Problems Manufacturers Deal With
The landscape of product costing has significantly changed over the last few decades.
New cost accounting techniques have been developed to cope with highly automated, computerized manufacturing systems and to accommodate transformations in the organizational structure of companies.
However, the standard cost accounting tools in enterprise resource planning (ERP) systems still do not provide sufficient support for reliable cost analysis, especially during early product development.
Manufacturing companies are still plagued by plenty of product costing problems, including:
- Lack of a standardized costing methodology
- Lack of resources for cost analysis
- Lack of connection with enterprise software
- Lack of reliable costing data
Moreover, bids from competitors with imperfect costing data often underprice more realistic bids.
This holds manufacturing companies at prices that are unprofitable and unsustainable over time.
4 Benefits of Product Costing Software for Manufacturing Companies
1. A standardized costing methodology
Having a standardized costing methodology will ensure you never miss or exceed your target costs.
With product costing software, you will have access to a centralized database with reference data, including labor costs, materials, machines, and manufacturing processes.
If you choose product costing software that integrates with your ERP system, you will also be able to utilize existing data to make reliable, repeatable cost calculations more quickly.
2. Company-wide exchange of information
Manufacturing companies often cite a lack of information, cost transparency, and missing links to management as the main barriers to effective product costing.
With product costing software, various departments, such as cost engineering, purchasing, and sales, can work together to achieve maximum profitability as quickly as possible.
3. Improved profitability
Product costing software ensures a cost-effective return on capital over the product lifecycle.
You can choose the best price points through knowledge-based cost analysis, as well as create reliable quotes with secured margins to ensure profitability.
4. Better investments
The profitability calculation function included in product costing software makes securing product investments much easier - and much more transparent.
It helps you break down annual costs, revenues, and cash flows and provides the basis for relevant indicators, such as internal rate of return (IRR), net present value (NPV), and payback periods.
Your Next Steps
Product costing software is an excellent addition to any manufacturer’s toolkit.
However, if you want to make the most out of your investment, you may want to consider choosing a full configure, price, quote (CPQ) solution instead.
Verenia CPQ is the #1 rated CPQ on the market - and for good reason.
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