Product Cost
Financial Dictionary — Cost Accounting
Definition
Product cost is the cost of inventory on hand, also called inventurable cost. They are assets until the products are sold. Once sold, it becomes an expense, i.e. Cost of Goods Sold (COGS). All manufacturing costs are product costs, for example, direct materials, direct labor, and factory overhead.
Use cases, Example & Why it matters
Use cases
- Used in product/service costing, budgeting, and variance analysis.
- Used to support pricing decisions and profitability analysis by cost behavior and drivers.
- Used to support pricing decisions and profitability analysis by cost behavior and drivers.
Example
- Example: The costing team uses **Product Cost** to allocate costs and analyze margins by product line.
Why it matters
- Why it matters: Improves cost accuracy, supports better pricing and budgeting, and strengthens performance measurement.