KOSTENTRÄGERRECHNUNGS COSTS

Product Costs

Product costs are comprised of three types of inputs which are required to create a product. These inputs include:  direct labor, direct materials, and manufacturing overhead. Product costs may include the labor which has been added to deliver a service to a customer.

(Total direct labor + Total direct materials + Total allocated overhead) / Total number of units
= Product unit cost

Such input costs start out as an inventory asset which is then charged to the cost of goods sold once the product has been sold (according to the Matching Principle), and reported as an expense on the income statement.

Product cost include manufacturing overhead. This is required by both GAAP and IFRS. In order to make good decisions about production performance and profitability, managers may modify product costs by eliminating the component of overhead when making short-term production and sale-price decisions (this is an example of Direct Costing). Managers may also try to report a type of what-if scenario to determine if a specific product is creating inefficiencies in other operations. This would be done through examination of direct costs involved (see Throughput Topics).