what is cost of production

The cost of production refers to the total expenses incurred by a business in manufacturing a product or providing a service. These costs include both direct and indirect expenses such as labor, raw materials, consumable manufacturing supplies, and general overhead. To calculate production costs, both direct costs (e.g., materials and labor) and indirect costs (e.g., rent and utilities) need to be considered. The total production cost is the sum of fixed and variable expenses, and it can be calculated by adding together all the production costs and dividing by the total units produced. It is essential for businesses to accurately measure production costs to estimate net profit or loss on sales and ensure that the selling price is higher than the cost per unit to make a profit.