Final answer:
Standard unit costs for product cost elements are developed for direct materials, direct labor, and manufacturing overhead. They are calculated based on the cost per unit of input and the quantity of input allowed for each unit of product. Average cost and marginal cost are also important in determining production cost-effectiveness.
Step-by-step explanation:
Standard unit costs are developed for various elements of product cost, which include direct materials, direct labor, and manufacturing overhead. Direct materials cost involves the cost per unit of input and the quantity of input allowed for producing each unit of product. Direct labor cost includes the expenses related to the wages of workers directly involved in the production process. Manufacturing overhead represents all the indirect costs associated with production, such as factory rent and utility expenses.
The cost per unit of input refers to the factor payment or cost associated with each unit of input, such as the cost of raw materials or the wages of workers. The quantity of input allowed represents the standard amount of each input that is expected to be used to produce a single unit of product, reflecting efficient and effective use of resources.
Moreover, average cost (AC) and marginal cost (MC) are two critical calculations used to determine the cost-effectiveness of production. Average cost is computed by dividing the total cost (TC) by the output quantity (Q), while marginal cost is determined by the change in total cost (ATC) divided by the change in output (AQ).