If it is sold at cost then can somebody explain the price difference between the 8gb and 16gb version as to me this makes no sence.

It's possible that the 8GB is slightly below "cost", and the 16GB slightly above "cost" so that, based on projected sales breakdown of the two varieties, the range as a whole will break even.

I put "cost" in quotes because working out the unit cost of a single item produced by a large organisation is a complicated accounting exercise with competing methodologies like http://en.wikipedia.org/wiki/Activity-based_costing.