The difference between cost and production costs.

The concept of cost refers to the product produced, but at the same time, the cost of production is closely related to the product. So what's the difference between the two? Or maybe these are exactly the same characteristics, just several names? Let's try to understand this economic issue in more detail.


Production costs associated with the costs that the company makes directly to the production. These include materials and components, salary and personal income tax, depreciation of used equipment and electricity. All these costs are directly or indirectly related to the goods produced, therefore they must be included in the production costs.

The cost price consists of production costs with the addition of overhead costs, which cannot be distributed in direct proportion to the units of goods, but are nevertheless included in their cost price. For example, this includes administrative expenses for renting premises, maintaining an office, and remuneration of non-production employees.


The point is that cost is a broader concept, which, in addition to production costs, includes other costs, called overhead, or management. In other words, in order to calculate the costs of production, it is necessary to add up all the costs incurred by the enterprise associated with this type of activity.

In order to know the cost of a unit of production, it is necessary to take into account not only the costs of its direct production, but also those items of costs that cannot be attributed to the process being carried out, but nevertheless they are present in the activities of any organization. After all, the salary of management personnel, maintenance of software products or the protection of premises are also expenses, but their value does not depend on the volume of production. They are permanent, and therefore cannot be attributed to a specific unit of manufactured products. They are included in the cost price, but only as overhead or management costs.


  1. Cost is a general characteristic of a product, and production costs are a private indicator.
  2. Production costs are used to calculate the cost, and not vice versa.
  3. Production costs include costs that were directly incurred in the manufacture of products, the cost, in addition to production costs, also includes administrative costs.