explaining Product Cost Meaning, Formula and example

Product Cost Meaning

Producing a product or providing a service entails several expenditures, including production costs (also known as product costs). These expenses cover a wide range of things. For example, raw materials and labor expenses associated with the creation of the product are borne by manufacturers. Service businesses have production expenses associated with the labor and materials needed to execute the service and deliver it.

What is the formula for unit product cost?

Product Cost per Unit Formula = (Total Product Cost ) / Number of Units Produced.


What determines the difference between a product cost and a period cost

Product costs are the expenses incurred during the actual manufacturing of a good or service that will be sold. Expenses incurred throughout a manufacturing period are referred to as period costs. Period costs include, but are not limited to, overhead and sales and marketing expenditures.

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Is Rent A Product Cost (a manufacturing overhead cost) or period Cost

In the case of manufacturing activities, the cost of rent is a component of the final output. Rent is frequently included in the manufacturing costs that are then attributed to specific items. The rent, which is an overhead cost of manufacturing, will remain in the final product. If the items are kept in stock, the cost of the rent is part of the production overhead. When items are sold, the rent associated with those goods is deducted from the sales price.

Rent is a period cost and will be expensed when the expense is incurred if the rent is for goods engaged in the selling activity (rent for office space, equipment, automobiles, etc.). There will be no allocation of these rents to specific goods in the financial statements provided to the public.

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product cost example

Let’s use the case of an Alberta-based shoe manufacturing firm as an example. The business just gathered data on production costs. The accounting department of the corporation has validated the following facts:

  • A total of $1,000,0000 was spent on leather and thread for the project.
  • A total of $350,0000 was spent on cobbler’s wages, with an additional $20,0000 going to security.
  • Greasing oils required in equipment maintenance cost $10,3000.
  • Seven thousand seven hundred dollars was spent on the rent and utilities for the facility.