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Free Guide to Calculate the Total Manufacturing Cost | Definition | Examples

Free Guide to Calculate the Total Manufacturing Cost | Definition | Examples

This is a simple version to properly calculate the total manufacturing cost by understanding its definition and formula. Let’s look more in detail.

What is the Total Manufacturing Cost?

The total manufacturing cost is the total expenses associated with all resources used in creating a finished product.

Total Manufacturing Cost needs an accurate analysis of any company’s various departments to find how they contribute to manufacturing and its associated costs.

What do Total Manufacturing Costs include?

The manufacturing cost includes 3 main manufacturing expenses which are the

Direct Materials

Includes the raw materials that turn into a finished product

Manufacturing Overhead

Costs associated with maintenance, machine process, and indirect material or supporting role labor
It includes all plant & production overhead costs like rent, repair & maintenance expenses, mortgage fees, production salary
Depreciation of Plant & Equipment

Direct Labor

Includes all employees who work in preparation, assembly, and manufacturing the goods

What is Manufacturing Budget?

A manufacturing budget can be a set of 3 budgets that will estimate the cost of direct materials, cost of direct labor, and cost of overhead for the predicted number of units that has to be produced in your production budget.

How to reduce the Manufacturing costs?

Direct Material Cost can be reduced by

Substituting lower-cost materials with zero comprise in quality

Managing the supply costs by finding an alternative supplier for similar products
Reducing waste by avoiding overproduction

Manufacturing Cost Examples

Here, let us see some examples for calculating the cost of direct material, labor, and overhead cost using formulas.

Direct Material Cost

The direct material cost is explained with example and formula.

What is direct material cost?

The direct material cost is the number of items and raw materials used to produce a respective product. The materials should be more convenient to identify with the resultant product. Here, the direct material cost is one of the least cost variables embroiled with the process of production.

How to calculate the direct material cost? Explained with example

For example, a coffee roaster machine has got a worth of ₹2,500 coffee beans at the starting period. You have purchased the coffee beans additionally for ₹4,000 and you have beans worth ₹2,000 at the end.

Direct Materials = Cost of material purchased + Beginning Inventory cost + (- Ending Inventory)

Total Direct Material Cost = ₹2,500 + ₹4,000 + (-₹2,000) = ₹4,500

Direct Labor Cost

The direct labor cost is explained with example and formula.

What is Direct Labor Cost?

Direct labor costs are wages that are happened to produce the services or goods offered to the customers. The cost of total direct labor cost is larger than the paid wages.

How to calculate the direct labor cost? Explained with example

A coffee roasting service providing team assembles 1Kg bags of coffee. The team wants to find the direct labor cost for each coffee bag.

Every member will work for 40 hours & get paid ₹25 per hour with a payroll tax of ₹5 per hour and fringe benefits of ₹3 per hour.

Direct Labor per hour = (25 + 5 + 3) ₹ /40 = ₹0.83

The team will assemble 150 bags within 40 hours.

Direct Labor Hours = 150/40 = 3.75 hours

Direct Labor Cost per unit = 0.83 * 3.75 = ₹3.11

Manufacturing Overhead Costs

The manufacturing overhead costs are explained with examples and formulas.

What is the manufacturing overhead cost?

The manufacturing overhead cost is the indirect cost that happened during the process of production. It is applied to all the created units within the reporting period.