Total Cost of Manufacturing
The total cost of manufacturing a product has three elements, namely:
- Raw material used (or Direct material cost)
- Direct labour (or Direct wages)
- Production overhead (or Factory overhead, or Works overheads)
A manufacturing business maintains a separate raw materials purchases account for each type of raw material used by its factory. Similarly, it maintains separate ledger accounts for direct wages and various production related expenses.
A Trial Balance extracted from the ledger of a manufacturing business is therefore capable of supplying the figures needed to calculate the value of each cost-element.
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.