## What is the total cost concept in managerial accounting?

March 25, 2012

**Learn about the total cost concept, one of the cost-plus pricing methods in managerial accounting.**

## 1. Definition of the total cost concept in managerial accounting

In
managerial accounting, **the total cost concept is one of the cost-plus
pricing methods used to determine the selling price of a product**. Cost-plus
pricing methods determine the selling price of a product as the total cost per
unit plus the markup.

According to
the total cost concept, **the total cost per unit includes manufacturing costs
as well as selling and administrative (S&A) expenses while the markup
equals the desired profit**.

To apply the total cost concept, follow these steps:

- Estimate total manufacturing costs
- Estimate total selling and administrative expenses
- Calculate estimated total cost (step 1 + step 2)
- Calculate total cost per unit: divide total cost (step 3) by the total number of units expected to be produced and sold
- Calculate the markup per unit
- Determine desired profit: total assets x desired rate of return
- Determine markup percentage: divide desired profit (step 5a) by total cost (step 3)
- Determine markup per unit: markup percentage (step 5b) x total cost per unit (step 4)

- Calculate the selling price: total cost per unit (step 4) + markup per unit (step 5c)

The total cost concept can also be used for profit and break even analysis.