Production cost refers to the cost incurred by a business when manufacturing a good or providing a service. Production costs include a variety of expenses including, but not limited to, labor, raw materials, consumable manufacturing supplies and general overhead.
Below is an example (from CourseHero.com) that will you give you an idea on how these things work:
Hemberger Corporation currently produces baseball caps - ACCOUNTING - 275 via kwout
To figure out the cost of production per unit, the cost of production is divided by the number of units produced.
$76,000 / 10,000 = $7.6
$106,000 / 20,000 = $5.3
Once the cost per unit is determined, the information can be used to help develop an appropriate sales price for the completed item.
In order to break even, the sales price must cover the cost per unit. Amounts above the cost per unit are often seen as profit while amounts below the cost per unit result in losses.
To learn more, refer to this study leaflet: Microeconomics: Markets, Prices, and Business Competition, pdf (from Glencoe.com).