Product margin is the difference between selling price and product cost. Product cost is the cost of producing a product or service that generates revenues through sales. This cost includes the cost of direct materials, direct labor, and overhead. Any readily identifiable part of product (such as the wood used in the production of a table) constitutes direct material. Direct labor refers to the time spent by employees, who work specifically on manufacturing the product or performing the service. Indirect costs, or overhead, include any factory or production cost that is indirect to the product or service. Examples of overhead costs include costs of management and supervision, depreciation of equipment, and insurance.
- Barfield, Jesse T., Cecily A. Raiborn, and Michael R. Kinney (1994). Cost Accounting: Traditions and Innovations,West Publishing Company, St. Paul, Minnesota.Google Scholar