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.