To be profitable, a company must have its selling prices large enough to cover both the product costs of the units sold and the period expenses.
The product cost is used for valuing the inventory and for determining the cost of goods sold. Since some of the manufacturing overhead costs are fixed in total (factory rent, factory depreciation, factory managers' salaries), the per unit cost of a product will depend upon the number of units manufactured during a given year. In other words, the cost of a product is not know with precision, even though accountants will compute the per unit cost to the nearest penny.
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