Manufacturing cost is the sum of costs of all resources consumed in the process of making a product. The manufacturing cost is classified into three categories:

direct materials cost Direct materials cost the cost of direct materials which can be easily identified with the unit of production. For example, the cost of glass is a direct materials cost in light bulb manufacturing. The manufacture of products or goods required ma ...

, direct

labor cost Direct labor cost is a part of wage-bill or payroll that can be specifically and consistently assigned to or associated with the manufacture of a product, a particular work order, or provision of a service. Also, we can say it is the cost of the wor ...

and manufacturing overhead. It is a factor in

total delivery cost Total Delivered Cost (TDC) is the amount of money it takes for a company to manufacture and deliver a product. Its components are: *Total Manufacturing Cost: Costs incurred up to and inclusive of the production of finished and wrapped pallets or ...

Direct materials cost

Direct materials are the

raw material A raw material, also known as a feedstock, unprocessed material, or primary commodity, is a basic material that is used to produce goods, finished goods, energy, or intermediate materials that are feedstock for future finished products. As feedst ...

s that become a part of the finished product. Manufacturing adds value to raw materials by applying a chain of operations to maintain a deliverable product. There are many operations that can be applied to raw materials such as

welding Welding is a fabrication (metal), fabrication process that joins materials, usually metals or thermoplastics, by using high heat to melt the parts together and allowing them to cool, causing Fusion welding, fusion. Welding is distinct from lower ...

, cutting and

painting Painting is the practice of applying paint, pigment, color or other medium to a solid surface (called the "matrix" or "support"). The medium is commonly applied to the base with a brush, but other implements, such as knives, sponges, and ...

. It is important to differentiate between direct materials and indirect materials.

Direct labour cost

The direct labour cost is the cost of workers who can be easily identified with the unit of production. Types of labour who are considered to be part of the direct labour cost are the assembly workers on an

assembly line An assembly line is a manufacturing process (often called a ''progressive assembly'') in which parts (usually interchangeable parts) are added as the semi-finished assembly moves from workstation to workstation where the parts are added in seq ...

Manufacturing overhead

Manufacturing overhead is any manufacturing cost that is neither direct materials cost nor direct labour cost. Manufacturing overhead includes all charges that provide support to manufacturing.

Manufacturing overhead includes

#Indirect labour cost: The indirect labour cost is the cost associated with workers, such as supervisors and

material handling Material handling involves short-distance movement within the confines of a building or between a building and a transportation vehicle. It uses a wide range of manual, semi-automated, and automated equipment and includes consideration of the pro ...

team, who are not directly involved in the production. #Indirect materials cost: Indirect materials cost is the cost associated with consumables, such as lubricants, grease, and

water Water (chemical formula ) is an inorganic, transparent, tasteless, odorless, and nearly colorless chemical substance, which is the main constituent of Earth's hydrosphere and the fluids of all known living organisms (in which it acts as a ...

, that are not used as raw materials. #Other indirect manufacturing cost: includes machine depreciation,

land rent In economics, economic rent is any payment (in the context of a market transaction) to the owner of a factor of production in excess of the cost needed to bring that factor into production. In classical economics, economic rent is any payment m ...

property insurance Property insurance provides protection against most risks to property, such as fire, theft and some weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, or bo ...

electricity Electricity is the set of physical phenomena associated with the presence and motion of matter that has a property of electric charge. Electricity is related to magnetism, both being part of the phenomenon of electromagnetism, as described ...

, freight and transportation, or any expenses that keep the

factory A factory, manufacturing plant or a production plant is an industrial facility, often a complex consisting of several buildings filled with machinery, where workers manufacture items or operate machines which process each item into another. T ...

operating.

Direct materials cost

Direct labour cost

Manufacturing overhead

Manufacturing overhead includes

References

Further reading