Extended Cost and Full Cost

Case Study: Supply Chain Analytics in Power BI

Nick Switzer

Analytics Lead

Unit Cost

Unit cost - the marginal cost of purchasing another unit.

A man holding a t-shirt in a machine that is printing on it

Unit Cost would include:

Raw Material:
- Blank shirts
- Ink
Cost of Production:
- Energy
- Labor hours
Manufacturer Profit

Extended Cost

Extended cost - The cost paid for the products only (does not include one-time expenses)

Extended Cost = (Unit Cost) * (Quantity of Units purchased)

Extended Cost = $15 per shirt * 10 shirts = $150

A simple t-shirt icon

Non-Recurring Expenses

One-time costs required to enable production

Common examples of non-recurring expenses:

Tooling or fixtures specific to the manufacturing process
Engineering expenses for production set-up
Minimum charge to occupy manufacturing equipment

Engineer setting up tooling for manufacturing

Full Cost

The total amount a company must pay to buy a certain quantity of products.

Full Cost = Extended Cost + Non-recurring Expenses

Full Cost = ($15 per shirt * 10 shirts) + $65 set-up fee = $215

Multiple colored t-shirts prepared for a printing process

A note about Overhead Rates

The overhead rate is a cost allocated to the production of a product or service. Overhead costs are expenses that are not directly tied to production such as the cost of the corporate office

For simplicity, this course do not include overhead rates.

¹ https://www.investopedia.com/terms/o/overhead-rate.asp

Let's calculate some Full Costs!

Case Study: Supply Chain Analytics in Power BI