Total manufacturing cost is the sum of costs of all resources consumed in the process of manufacturing goods.
Explanation:
Here is the formula for total manufacturing cost:
- Total manufacturing cost = Direct materials cost + Direct labor cost + Manufacturing overhead.
Manufacturing overhead or overhead costs are all indirect costs incurred during the manufacturing process. Indirect costs are production costs other than direct materials and direct labor. Indirect costs may alternate and include utilities, depreciation, taxes, marketing expenses, and others.
Total manufacturing cost influences profit.
- Profit = Revenues – Total manufacturing cost.
Here is also the total manufacturing cost per unit formula:
- Total manufacturing cost per unit = Total manufacturing costs/Number of units
Costs may be fixed, variable, mixed, and step in terms of cost behavior. Indirect costs like indirect labor, supplies, and utilities are variable. Indirect costs, such as rent, insurance, salaries, depreciation, and property taxes, are fixed.
Revenues, costs, and sales volumes are the main ‘participants’ of cost volume profit (CVP) relationships. They are the main components of the economics of a business.
