Product cost
A product cost is cost assigned to units of output for the specified purpose and method. Absorption production cost includes fixed production overhead; marginal production cost includes variable production costs only. Internal pricing may additionally attribute non-production costs. Identify whether the task concerns inventory, pricing, profitability or a decision before selecting the relevant cost base. A product cost is not automatically a selling price or the cash saved by stopping production.
Worked example
A unit has $12 prime cost, $3 variable production overhead and $5 fixed production overhead absorbed. Its absorption production cost is $20 and marginal production cost $15.
Common mistake
Do not compare two unit-cost figures without checking whether they include the same costs and use the same activity assumptions.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |