Which of the following is a purpose of product costing?

• A. To identify cost drivers that are costing more than budgeted.
• B. To determine yield on investments.
• C. To forecast currency movements.
• D. To set advertising budget.

Answer: (A)

Product costing is about understanding what it costs to produce a product and, importantly, identifying what drives those costs. By breaking costs into direct materials, direct labor, and overhead—and then examining the factors that cause those costs to vary (cost drivers)—you can spot where costs are higher than planned. This helps management control spending, explain variances from the budget, and target improvements where pricey cost drivers are pushing up total cost. That makes identifying cost drivers costing more than budgeted the best fit for the purpose of product costing.

The other options aren’t about calculating or controlling product costs. Yield on investments relates to profitability of investments, currency movements forecasting is about foreign exchange risk, and setting an advertising budget belongs to marketing planning, not product costing.