Accounting

We answer your accounting questions.

Over 500 questions have been answered on our accounting blog.

 accounting blog

September 3, 2008

How do I compute the product cost per unit?

In accounting, we define the product cost as the direct material, direct labor, and manufacturing overhead. Costs such as advertising, preparing invoices, delivery expense, office salaries, office rent and utilities, and interest on loans are examples of expenses that are not considered to be product costs. Rather, these costs are expensed immediately to the period instead of being assigned to a product.

To be profitable, a company must have its selling prices large enough to cover both the product costs of the units sold and the period expenses.

The product cost is used for valuing the inventory and for determining the cost of goods sold. Since some of the manufacturing overhead costs are fixed in total (factory rent, factory depreciation, factory managers’ salaries), the per unit cost of a product will depend upon the number of units manufactured during a given year. In other words, the cost of a product is not know with precision, even though accountants will compute the per unit cost to the nearest penny.

Learn more about Manufacturing Overhead.

Related Questions
the accounting coach

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.



 Accounting Exams

Accounting Exams
Printable (PDF) Exams on 16 financial accounting topics and 19 managerial accounting topics. More Info...

     Accounting Bookkeeping Test

Bookkeeping Test
Test your bookkeeping skills. Printable (PDF) Bookkeeping Test with 175 total questions. More Info...

 Accounting Forms

Business Forms
Our Master Set of 80 Business Forms will assist you in preparing financial statements, financial ratios, break-even calculations, depreciation, standard cost variances, and more. More Info...


Comments

6 Responses to “How do I compute the product cost per unit?”

  1. M. Sajeed on September 9th, 2008 1:49 am

    Perfect info and great job. I love this site. It has helped me in many ways. A big THANKS.

  2. Nilima on September 13th, 2008 12:28 am

    Its a great web site which has helped me a lot. I have suggested all my friends to go through this site and enrich theirselves with great knowledge about accounting. The non-finance people also can go through this material easily and understand the concepts.
    Thank you :)

  3. Dumidu Herath on January 30th, 2009 7:24 am

    hey thanks i got the information that i required from your site. but if you can put the formulas it would be great.

  4. Judy on May 18th, 2009 1:28 pm

    How do I determine the total manufacturing cost assigned to each department?
    Direct materials used $92,000
    Direct labor cost $48,000
    Manufacturing overhead incurred $76,000
    Direct labor hours 4,000
    Machine hours 8,000
    Thank you for your help.

  5. stalin felix on September 23rd, 2009 6:53 am

    thank you for providing me the most valuable information Which is helped my carrier . i will be here for making my life & carrier outstanding . i am really obliged to this site .

  6. zubair on November 19th, 2009 5:30 pm

    HI, THERE

    I HAVE A PROBLEM TO SOLVE AND I NEED YOUR HELP IN SOLVING PROBLEM I WILL GIVE INFORMATION ABOUT BOOK
    CHAPTER 7 MANAGEMENT ACCOUNTING AND CONTROL SYSTEMS: ASSESSING PERFORMANCE OVER THE VALUE CHAIN
    PAGE NO: 345
    PROBLEM NUMBER: 7.62( BEVANS CO)

    THANKING YOU

Leave a Reply