Product costs are the costs allocated or the costs accumulated to create a product. In general, Product costs will include direct labor, direct materials, consumable production supplies (MRO), and factory overhead. A product cost is typically calculated on a single unit or on a batch of units and divided by the number of units manufactured. This is why ordering in "bulk" or "batch" is often times more cost effective, because the cost of the batch is spread over the entire group rather than accumulated to one piece. Keep in mind that product costs are initially recorded as inventory on a companies records. Once the product is sold, it then becomes an expense (cost of goods sold).
Different Approaches to Product Costing:
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