When we’re talking about goods, we can either talk about purchasing or producing them. Purchasing is a process where you buy something and resell the item to your customer with adding no or little value to the item. Producing however means that you buy materials and your produce an item out of those materials buy putting them together, changing them into specified forms etc. 

Buying goods means you can determine the cost of the item pretty easily – it’s the purchase price and various transportation and tax expenses you incurred. When producing something however, it’s not that straightforward since the word “consumption” pops into the equation. How much of the material did you use for one specific unit of this specific item? Was anything turned into waste, i.e. leftover that cannot be used and thus is also expense for you? How much of the machinery was being used to create this unit? Is the usage generic or do some items require more, say energy? These are all the questions you need to answer when producing.

Production is done from various resources your company has specifically for the purpose acquired and set up and as such keeping an accurate and adequately detailed accounting is crucial.