Production Cost

Production Cost
A cost incurred by a business when manufacturing a good or producing a service. Production costs combine raw material and labor. To figure out the cost of production per unit, the cost of production is divided by the number of units produced. A company that knows how much it will cost to produce an item, or produce a service, will have a clearer picture of how to better price the item or service and what will be the total cost to the company.

Businesses that know their production costs know the total expense to the production line, or how much the entire process will cost to produce the item. If costs are too high, these can be decreased or possibly eliminated. Production costs can be used to compare the expenses of different activities within the company. In production, there are direct costs and indirect costs. For example, direct costs for manufacturing an automobile are materials such as the plastic, metal or labor incurred to produce such an item. Indirect costs include overhead such as rent, salaries or utility expense.


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  • production cost — total cost of production The total of all the costs incurred in producing a product or cost unit. In a manufacturing account the production cost is represented by the total of the prime costs and the manufacturing overhead. See: cost of goods… …   Accounting dictionary

  • production cost — total cost of production The total of all the costs incurred in producing a product or cost unit In a manufacturing account the production cost is represented by the total of the direct costs and the manufacturing overhead See cost of goods… …   Big dictionary of business and management

  • production cost variance — In standard costing, the variance arising when the standard cost of the actual production is compared with the actual cost incurred. If the standard cost is higher than the actual cost a favourable variance arises, while if the actual cost… …   Accounting dictionary

  • production cost variance — In standard costing, the variance arising when the standard cost of the actual production is compared with the actual cost incurred. If the standard cost is higher than the actual cost a favourable variance arises, while if the actual cost… …   Big dictionary of business and management

  • production cost — noun combined costs of raw material and labor incurred in producing goods • Hypernyms: ↑cost * * * noun : the combined total of raw material and direct labor costs and burden incurred in production …   Useful english dictionary

  • production cost — /prə dʌkʃən kɒst/ noun the cost of making a product …   Marketing dictionary in english

  • production cost — /prə dʌkʃən kɒst/ noun the cost of making a product …   Dictionary of banking and finance

  • production cost centre — An area of an organization, such as a function, department, section, individual, or any group of these, in which production is carried out. See also: cost centre …   Accounting dictionary

  • production cost centre — An area of an organization, such as a function, department, section, individual, or any group of these, in which production is carried out. See also cost centre …   Big dictionary of business and management

  • production cost advantage — A source of competitive advantage that depends on producing some product or service at the lowest cost. Bloomberg Financial Dictionary …   Financial and business terms

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