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.

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