What is Product Cost, Difference Between Cost And Price

what is product cost

Product is the value of which is included process and manufacturing expenses .When a manufacturing unit or a company purchase or produce a product ,total expenses that are payed for production ,transportation.Sum of these expenses is cost of product.

What is Product Cost, Difference Between Cost And Price
What is Product Cost, Difference Between Cost And Price

For example: A manufacturing unit produce “Cars”.The sum of all expenses paid in production of a car is cost(product cost) of a car.It means one car cost (product cost)is sum of  raw material for one car+labour+paint+electricity used for production. Return value of the sum is the cost of one car.  Product cost can be considered the cost of the labor required to give a service to a customer.

The calculation is:

(Total direct labor + Total direct material + Consumable supplies + Total overhead expense) / Total number of units = Product per unit cost

Difference Between Cost And Price

Most people are confused in these two words” Product Cost “and “product Price”. Price and cost is both different meant words.As write on above ,cost (product cost)is a value that contain all charges including raw material to labour and services.But in not include profit of the manufacturer or trader.

But in case of word “price” basic difference is that it includes profit of manufacturer or trader.It means when a manufacturer or trader produce a product and product cost is $50. And he sale this product on as  $50 than he has no gain profit.But if the cost is $50 and he sale the product in $55 with addition of $5.Then he gain profit and $55 is the price of the product.

In some cases cost is also equal to price. Assume social activity company produce books.Cost of per book is $5 .But the company sale this book as same $5. In this case the company no profit.But Cost and Price is same $ 5.

So this is easily to understand cost and price.Cost represents the value of all manufacturing process and price represents the selling value in which the product is given to consumer.