{"id":36291,"date":"2022-11-07T06:00:00","date_gmt":"2022-11-07T14:00:00","guid":{"rendered":"https:\/\/www.autodesk.com\/products\/fusion-360\/blog\/?p=36291"},"modified":"2024-04-07T19:13:36","modified_gmt":"2024-04-08T02:13:36","slug":"total-manufacturing-cost-what-it-is-and-how-to-calcuate-it","status":"publish","type":"post","link":"https:\/\/www.autodesk.com\/products\/fusion-360\/blog\/total-manufacturing-cost-what-it-is-and-how-to-calcuate-it\/","title":{"rendered":"Total Manufacturing Cost: What It Is and How To Calcuate It"},"content":{"rendered":"\n<p>&#8220;<em>Manufacturing cost&#8221; can be a daunting term. However, there\u2019s a smooth formula to follow to figure out what your total manufacturing cost is. See how you can apply it to your business.<\/em><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/autodesk.com\/products\/fusion-360\/blog\/wp-content\/uploads\/2022\/11\/img_63642773677ec.png\" alt=\"manufacturing-cost-autodesk-prodsmart\"\/><\/figure>\n\n\n\n<p>The thought of figuring out your total manufacturing costs can be intimidating. The good news is that it\u2019s far from impossible. You don\u2019t have to pretend to be an accountant to figure it out.&nbsp;<\/p>\n\n\n\n<p>You also don\u2019t want to gloss over what your total manufacturing costs mean for you. If you know what&nbsp;your inventory value&nbsp;is, you can easily figure out your sales margins. There may be some wiggle room to cut down on unneeded costs.<\/p>\n\n\n\n<p>There\u2019s a smooth formula to follow to figure out what your total manufacturing cost is. Continue reading to see how you can apply it to your business.<\/p>\n\n\n\n<p>It\u2019s time to calculate your manufacturing costs!&nbsp;So let&#8217;s dive in.<\/p>\n\n\n<h2 class=\"wp-block-heading\" id=\"what-is-my-total-manufacturing-cost\"><strong>What Is My Total Manufacturing Cost?<\/strong><\/h2>\n\n\n<p>In the simplest terms, it&#8217;s the total cost to make your products during a period of time.<\/p>\n\n\n\n<p>There are three things to consider when figuring out your total costs:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Direct Materials<\/li>\n\n\n\n<li>Direct Labor<\/li>\n\n\n\n<li>Firm Overhead<\/li>\n<\/ul>\n\n\n\n<p>Add those three together, and you\u2019ve got your total.<\/p>\n\n\n\n<p>Direct Materials +&nbsp;Direct Labor&nbsp;+ Firm Overhead = Total Manufacturing Cost<\/p>\n\n\n<h2 class=\"wp-block-heading\" id=\"direct-materials\"><strong>Direct Materials<\/strong><\/h2>\n\n\n<p>Your direct materials are the actual materials you need to buy, refine, and consume to make your product.<\/p>\n\n\n\n<p>You need to figure out how much of these materials you have on hand. Then, add the total cost of new direct materials. Finally, subtract the ending inventory at the end of the financial period.&nbsp;<\/p>\n\n\n\n<p>Beginning Inventory + Added Purchases \u2013 Ending Inventory =&nbsp;Direct Materials Cost<\/p>\n\n\n\n<p>Think about it. Not all of your materials get put into your products. Some go into <a href=\"https:\/\/www.autodesk.com\/products\/fusion-360\/blog\/production-scheduling-tools-prodsmart\/\">production.<\/a> Some go into scrap. There are also some cases where you use materials that don\u2019t go directly into the product.<\/p>\n\n\n\n<p>For example, if you make soft drinks, there is water within the actual product. This water is a direct material.&nbsp;<\/p>\n\n\n\n<p>You would also use water to wash the equipment you use. This water is not a direct material.&nbsp;<\/p>\n\n\n\n<p>Some other examples of direct materials:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The timber used to build a house<\/li>\n\n\n\n<li>The steel used to make a car<\/li>\n\n\n\n<li>The fabric used to create clothes<\/li>\n<\/ul>\n\n\n<h2 class=\"wp-block-heading\" id=\"direct-labor\"><strong>Direct Labor<\/strong><\/h2>\n\n\n<p>You can\u2019t forget that creating your products takes labor. Without anyone spending time on your products, they won\u2019t be made.<\/p>\n\n\n\n<p>It costs money to have staff in a production line and a manager to oversee them. It also costs money to offer them benefits such as retirement funds, holiday pay, and payroll taxes. Anything you pay for employees to create your product is part of direct labor.<\/p>\n\n\n\n<p>There are&nbsp;two main types of direct labor:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Variable labor:<\/strong>&nbsp;based on the production output (for example, hourly employees)<\/li>\n\n\n\n<li><strong>Fixed Labor:<\/strong>&nbsp;Stays the same regardless of the output (for example, fixed salaries)<\/li>\n<\/ul>\n\n\n\n<p>Keep in mind, there are certain roles that don\u2019t have anything to do with direct labor. Support staff such as HR and Accounting don\u2019t directly help create the product. Therefore, they\u2019re not included in your direct labor calculation.<\/p>\n\n\n<h2 class=\"wp-block-heading\" id=\"manufacturing-overhead\"><strong>Manufacturing Overhead<\/strong><\/h2>\n\n\n<p>The last bit you need to think about in total manufacturing costs is your firm overhead. This is everything else you need to <a href=\"https:\/\/www.autodesk.com\/products\/fusion-360\/blog\/streamline-manufacturing-operations-management\/\">keep production running<\/a>.&nbsp;<\/p>\n\n\n\n<p>Here&#8217;s a small list that can help you decide what to include:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The cost of running your machines (water, electricity, etc)<\/li>\n\n\n\n<li>The cost of maintenance<\/li>\n\n\n\n<li>Depreciation of your equipment<\/li>\n\n\n\n<li>Quality inspection of your final products<\/li>\n<\/ul>\n\n\n\n<p>Things overhead do NOT include are:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Administration wages<\/li>\n\n\n\n<li>Sales<\/li>\n\n\n\n<li>Marketing<\/li>\n\n\n\n<li>Office rent<\/li>\n\n\n\n<li>Other staff salaries<\/li>\n<\/ul>\n\n\n<h2 class=\"wp-block-heading\" id=\"examples-of-total-manufacturing-cost\"><strong>Examples of Total Manufacturing Cost<\/strong><\/h2>\n\n\n<p>It may be helpful to see a few examples to get an idea.&nbsp;<\/p>\n\n\n<h4 class=\"wp-block-heading\" id=\"example-1-manufacturing-a-car\"><strong>Example #1: Manufacturing a Car<\/strong><\/h4>\n\n\n<p><strong>Direct Materials:<\/strong><\/p>\n\n\n\n<p>Steel: $8,000<\/p>\n\n\n\n<p>Wheels: $5,000<\/p>\n\n\n\n<p>Leather: $1,000<\/p>\n\n\n\n<p><strong>Total:<\/strong>&nbsp;$14,000<\/p>\n\n\n\n<p><strong>Direct Labor:<\/strong><\/p>\n\n\n\n<p>$20,000&nbsp;<\/p>\n\n\n\n<p><strong>Manufacturing Overhead:<\/strong><\/p>\n\n\n\n<p>$10,000<\/p>\n\n\n\n<p>Direct Materials ($14,000) + Direct Labor ($20,000) + Manufacturing Overhead ($10,000) = <strong>Total Manufacturing Cost ($44,000)&nbsp;<\/strong><\/p>\n\n\n<h4 class=\"wp-block-heading\" id=\"example-2-manufacturing-1000-wooden-tables\"><strong>Example #2: Manufacturing 1,000 Wooden Tables<\/strong><\/h4>\n\n\n<p><strong>Direct Materials:<\/strong><\/p>\n\n\n\n<p>Wood: $12,000<\/p>\n\n\n\n<p>Nails: $100<\/p>\n\n\n\n<p><strong>Total: $12,100<\/strong>&nbsp;<\/p>\n\n\n\n<p><strong>Direct Labor:<\/strong><\/p>\n\n\n\n<p>Carpenters: $2,000<\/p>\n\n\n\n<p>Security overlooking facility: $500<\/p>\n\n\n\n<p><strong>Total: $2,500<\/strong>&nbsp;<\/p>\n\n\n\n<p><strong>Manufacturing Overhead:<\/strong><\/p>\n\n\n\n<p>Rent and utilities: $500<\/p>\n\n\n\n<p>Direct Materials ($12,100) + Direct Labor ($2,500) + Manufacturing Overhead ($500) = <strong>Total Manufacturing Cost ($15,100)<\/strong><\/p>\n\n\n<h4 class=\"wp-block-heading\" id=\"example-3-skateboard-manufacturer\"><strong>Example #3: Skateboard Manufacturer<\/strong><\/h4>\n\n\n<p><strong>Direct Materials:<\/strong><\/p>\n\n\n\n<p>Deck materials: $20<\/p>\n\n\n\n<p>Metal Trucks: $10<\/p>\n\n\n\n<p>Wheels: $16<\/p>\n\n\n\n<p><strong>Total: $46<\/strong><\/p>\n\n\n\n<p><strong>Direct Labor:<\/strong><\/p>\n\n\n\n<p>Per unit: $10<\/p>\n\n\n\n<p><strong>Manufacturing Overhead:<\/strong><\/p>\n\n\n\n<p>Bearings, lubricant, paint, staff, electricity: $10 per unit&nbsp;<\/p>\n\n\n\n<p>Direct Materials ($46) + Direct Labor ($10) + Manufacturing Overhead ($10) = <strong>Total Manufacturing Cost ($66)&nbsp;<\/strong><\/p>\n\n\n<h2 class=\"wp-block-heading\" id=\"figuring-out-your-total-manufacturing-cost\"><strong>Figuring out Your Total Manufacturing Cost<\/strong><\/h2>\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/autodesk.com\/products\/fusion-360\/blog\/wp-content\/uploads\/2022\/11\/img_6364277717217.png\" alt=\"total-manufacturing-costs-autodesk-prodsmart\n\"\/><\/figure>\n\n\n\n<p>To find out what your total manufacturing cost is, use this simple formula:<\/p>\n\n\n\n<p>Direct Materials + Direct Labor + Manufacturing Overhead = Total Manufacturing Cost&nbsp;<\/p>\n\n\n\n<p>There is only one real way to figure out your total manufacturing costs. However, it may look different depending on your actual process.<\/p>\n\n\n\n<p>A digital product may not have many direct materials. They do, however,&nbsp; still need direct labor and manufacturing overhead to produce.<\/p>\n\n\n\n<p>Knowing how much you\u2019re spending on production is important. It gives you an understanding of the relationship&nbsp;between manufacturing, profit, and sales.&nbsp;<\/p>\n\n\n\n<p>Don\u2019t make the mistake of underestimating some of your expenses. They might seem like minor details. Overlooking small numbers can still have a large impact that can hurt your business.<\/p>\n\n\n\n<p>By using the right software you can <a href=\"https:\/\/www.autodesk.com\/products\/fusion-360\/blog\/production-scheduling-tools-prodsmart\/\">streamline your manufacturing process <\/a>to make it less daunting and overwhelming. Want to learn more about how it works?&nbsp;<\/p>\n\n\n\n<p>Start with a free trial of <a href=\"https:\/\/www.autodesk.com\/products\/prodsmart\/overview?mktvar002=4333583001|ORG|&amp;utm_medium=social&amp;utm_source=other&amp;utm_campaign=4333583dmblogf360&amp;utm_id=4333583001\">Autodesk Fusion Operations<\/a>.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><a href=\"https:\/\/www.autodesk.com\/products\/prodsmart\/overview\"><img loading=\"lazy\" decoding=\"async\" width=\"766\" height=\"128\" src=\"https:\/\/www.autodesk.com\/products\/fusion-360\/blog\/wp-content\/uploads\/2022\/04\/try-for-free.png\" alt=\"\" class=\"wp-image-31472\" srcset=\"https:\/\/www.autodesk.com\/products\/fusion-360\/blog\/wp-content\/uploads\/2022\/04\/try-for-free.png 766w, https:\/\/www.autodesk.com\/products\/fusion-360\/blog\/wp-content\/uploads\/2022\/04\/try-for-free-300x50.png 300w\" sizes=\"auto, (max-width: 766px) 100vw, 766px\" \/><\/a><\/figure>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>There\u2019s a smooth formula to follow to figure out what your total manufacturing cost is. See how you can apply it to your business.<\/p>\n","protected":false},"author":193,"featured_media":36297,"menu_order":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[235,482,480],"tags":[481,143],"coauthors":[],"class_list":["post-36291","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-machining","category-fusion-operations","category-manufacturing","tag-fusion-operations","tag-manufacturing","dhig-theme--light"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Total Manufacturing Cost: What It Is and How To Calcuate It<\/title>\n<meta name=\"description\" content=\"There\u2019s a smooth formula to follow to figure out what your total manufacturing cost is. 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