Month End Glossary

Product Cost

Product cost refers to the total expenses incurred to manufacture a product, including direct materials, direct labor, and manufacturing overhead costs.

Product cost encompasses all the costs directly associated with the production of goods. This includes direct costs such as the raw materials used to make the product, as well as direct labor, which refers to the wages paid to workers who are directly involved in the manufacturing process. Additionally, product cost incorporates manufacturing overhead, which includes indirect costs like equipment depreciation, utilities for the production facility, and other costs necessary to produce the product but not directly tied to the finished product.

Using the term in context, consider a company manufacturing chairs. The cost of the wood and fabric used as direct materials, the wages of workers assembling the chairs as direct labor, and the factory rent as part of manufacturing overhead would all combine to form the product cost of the chairs. It's essential for businesses to understand product cost to determine the profitable pricing of their goods and to manage expenses effectively.

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