What defines a Product Cost?

A product cost is fundamentally defined as costs that are directly tied to the manufacturing of products or the purchase of goods for resale. This includes all expenses that are incurred to create a product and prepare it for sale, which encompasses materials, labor, and overhead costs. By identifying costs relevant to products purchased for resale, companies can determine the total cost of goods sold and ultimately assess profitability.

The option pertaining to expenses recorded in the income statement refers to a broader class of costs, which may include various types of expenses like operating costs, interest, and taxes, rather than specifically product costs. The mention of costs related to office supplies does not fit the definition of product costs, as these are typically considered selling or administrative expenses rather than costs directly related to production or procurement. Similarly, costs associated with employee salaries can vary in classification; while some salaries could be considered product costs if they are directly tied to manufacturing, many salaries (particularly those involved in administrative roles) fall outside the scope of product costs.