Producing your own goods that you sell afterwards means that you include various expenses into the item’s price. It’s the material, labour cost, depreciation of equipment used, utilities etc. It’s various expenses used in production that form the price of the item. 

However, if you think about it, if your production process isn’t producing like just 10 items per month, it’s probably pretty tricky and hard work to calculate the exact item price each time. The term used and something that comes into the equation here is the word “standard price”. That’s something you work out once you start with the initial production and once you reach to the consumption of materials and time that it always takes once you reach the maximum efficiency level (meaning here that initially everything takes more time, you use more materials etc.)

The standard price is used for pricing the produced goods and also expensing them onto the income statement if you sell them.

One thing to remember with standard prices is that they should be measured against actual expenses relating to the production and if there’s any need to change the standard (i.e. if inputs increase when it comes to materials purchase prices or labour expenses etc. or if work methods increase efficiency even more thus reducing inputs). If there’s need to change the standard price, it should be done.