• Cost is the total direct cost of producing a product, including raw materials and labor.
  • Indirect costs such as utilities, salaries of managers and shipping costs are not included in the cost price.
  • Businesses need to calculate the cost of each product produced in order to ensure profit.
  • By calculating the cost, enterprises better understand their rate of return or the lowest selling price of a product.
  • The cost price does not show the total cost of production, which can be misleading if there are high indirect costs.