Definition: Product costs are any costs that relate to manufacturing or merchandising an item for sale to customers. A common example is inventory, which reflects costs a manufacturing company incurs when buying all the different items or raw materials they need to make the items sold to their customers. For a merchandiser, the cost of inventory is what it pays to buy the finished goods from the manufacturer. So how does this tie into your arts and crafts business? Well, if you handcraft items for sale to customers at craft shows or through your website, all the raw materials you buy to make the items are your inventory product costs. An example of a product costs for a crafter who sells sweaters is yarn. If you own an arts or crafts gallery, which makes you a merchandiser, your product costs are what you pay to buy the completed handcrafted items for sale to your customers.