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 labor cost and manufacturing overhead. It is a factor in total delivery cost.

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/Intermediate goods that are feedstock for future finished ...

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, primarily by using high temperature to melting, melt the parts together and allow them to cool, causing Fusion welding, fusion. Co ...

, cutting and

painting Painting is a Visual arts, visual art, which is characterized by the practice of applying paint, pigment, color or other medium to a solid surface (called "matrix" or "Support (art), support"). The medium is commonly applied to the base with ...

. 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, often called ''progressive assembly'', is a manufacturing process where the unfinished product moves in a direct line from workstation to workstation, with parts added in sequence until the final product is completed. By mechan ...

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 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 is an inorganic compound with the chemical formula . It is a transparent, tasteless, odorless, and Color of water, nearly colorless chemical substance. It is the main constituent of Earth's hydrosphere and the fluids of all known liv ...

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

electricity Electricity is the set of physical phenomena associated with the presence and motion of matter possessing an electric charge. Electricity is related to magnetism, both being part of the phenomenon of electromagnetism, as described by Maxwel ...

, freight and transportation, or any expenses that keep the

factory A factory, manufacturing plant or 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. Th ...

operating.

Direct materials cost

Direct labour cost

Manufacturing overhead

Manufacturing overhead includes

References

Further reading