Free tool
Total manufacturing cost calculator
Total manufacturing cost is everything it cost to run production in a period: direct materials used, plus direct labor, plus manufacturing overhead. Enter those three, add work in process and the units you finished, and the calculator returns the total manufacturing cost, the cost of goods manufactured, the cost per unit and the overhead rate.
Direct materials usedequalsbeginning raw materials + purchases − ending raw materials
Total manufacturing costequalsdirect materials used + direct labor + manufacturing overhead
Cost of goods manufacturedequalstotal manufacturing cost + beginning work in process − ending work in process
Cost per unitequalscost of goods manufactured divided by units completed
Overhead rateequalsmanufacturing overhead divided by direct labor hours or machine hours
Cost of goods soldequalsbeginning finished goods + cost of goods manufactured − ending finished goods
Pre-filled with the worked example (illustrative). Use one period for every figure, such as a month. Costing conventions differ, so agree the method with Finance.
Total manufacturing cost
$299,000
$135,000 materials + $80,000 labor + $84,000 overhead.
Cost of goods manufactured
$290,000
Work in process up $9,000
Cost per unit
$29.00
$290,000 ÷ 10,000 units
Overhead rate per direct labor hour
$21.00
$84,000 ÷ 4,000 h
Overhead on labor cost
105%
Overhead ÷ direct labor cost
Prime cost
$215,000
Materials + direct labor
Conversion cost
$164,000
Direct labor + overhead
Cost of goods sold
$282,000
Start finished goods + COGM − end finished goods
Where the total manufacturing cost goes
- Cost per unit is the cost of goods manufactured divided by units completed, so work still in process is left out of it.
The cost of goods manufactured statement
The same figures laid out the way an accountant sets them down: materials used, then labor, then overhead, then the two work in process lines.
| Line | Amount |
|---|---|
| Raw materials at the start | $40,000 |
| + Materials purchased | $130,000 |
| − Raw materials at the end | $35,000 |
| Direct materials used | $135,000 |
| + Direct labor | $80,000 |
| + Manufacturing overhead | $84,000 |
| Total manufacturing cost | $299,000 |
| + Work in process at the start | $22,000 |
| − Work in process at the end | $31,000 |
| Cost of goods manufactured | $290,000 |
| + Finished goods at the start | $18,000 |
| − Finished goods at the end | $26,000 |
| Cost of goods sold | $282,000 |
What the $84,000 of overhead is made of
| Overhead line | Amount | Share |
|---|---|---|
| Indirect labor | $24,000 | 28.6% |
| Factory rent, property tax and insurance | $18,000 | 21.4% |
| Equipment depreciation | $14,000 | 16.7% |
| Factory utilities | $9,500 | 11.3% |
| Maintenance and repairs | $7,500 | 8.9% |
| Indirect materials | $6,500 | 7.7% |
| Other factory overhead | $4,500 | 5.4% |
Overhead is the factory cost you cannot trace to one unit. Sales, office and executive costs are left out: they are period expenses, not part of what a unit costs to make.
Next step
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Before you enter numbers
Choosing the inputs
One period. Take a month, or a quarter, and use it for every line. Mixing a month of labor with a quarter of materials is the commonest reason a total looks wrong.
Direct materials. Raw materials and components that end up in the product. Use the inventory method: beginning raw materials plus purchases less ending raw materials. A count picks up scrap and waste that a bill of materials multiplied by units misses. If your system already reports materials used, switch to one figure.
Direct labor. The pay of the people who work on the product, at full cost: wages, overtime, payroll taxes and benefits. Wages alone understate it.
Manufacturing overhead. Every other factory cost: indirect materials, indirect labor, factory rent and insurance, utilities, equipment depreciation, maintenance. Leave the office out. A blank line counts as zero.
Work in process. The cost sitting in unfinished jobs at the start and at the end of the period. If you finish everything you start, enter 0 for both.
Units and hours. Units are the finished units of the period. Direct labor hours come from payroll or time sheets; machine hours from your run logs. Each is optional and each gives one result.
Worked example
Illustrative numbers, not a benchmarkA metal fabricator's month. Raw materials were $40,000 at the start, $130,000 was bought and $35,000 was left at the end. Direct labor cost $80,000 for 4,000 hours. Overhead: indirect materials $6,500, indirect labor $24,000, factory rent, tax and insurance $18,000, utilities $9,500, equipment depreciation $14,000, maintenance $7,500 and other $4,500. The machines ran 2,800 hours. Work in process was $22,000 at the start and $31,000 at the end. 10,000 units were completed. Finished goods were $18,000 at the start and $26,000 at the end.
- 1Direct materials used: 40,000 + 130,000 − 35,000 = $135,000.
- 2Direct labor: $80,000, which is $20 for each of the 4,000 hours.
- 3Manufacturing overhead: 6,500 + 24,000 + 18,000 + 9,500 + 14,000 + 7,500 + 4,500 = $84,000.
- 4Total manufacturing cost: 135,000 + 80,000 + 84,000 = $299,000. Materials are 45.2% of it, labor 26.8% and overhead 28.1%.
- 5Cost of goods manufactured: 299,000 + 22,000 − 31,000 = $290,000.
- 6Cost per unit: 290,000 ÷ 10,000 = $29.00.
- 7Overhead rate: 84,000 ÷ 4,000 labor hours = $21.00 an hour; 84,000 ÷ 2,800 machine hours = $30.00 an hour; 84,000 ÷ 80,000 = 105% of direct labor cost.
- 8Cost of goods sold: 18,000 + 290,000 − 26,000 = $282,000.
What counts as manufacturing overhead
Manufacturing overhead is every cost of running the factory that you cannot trace to one unit. IAS 2 lists the usual ones: indirect materials and indirect labor, depreciation and maintenance of factory buildings and equipment, and the cost of factory management (IAS 2 Inventories, paragraph 12).
In overhead: the supervisor's salary, the forklift driver, cutting oil and gloves, plant electricity, press depreciation, gauge calibration, plant insurance, factory property tax.
Not in overhead: sales commissions, head-office rent, executive pay and delivery to customers. They are expenses of the period, not part of what a unit costs to make.
A quick test. Ask whether the cost would stop if the factory closed while the office stayed open. If it would, and you cannot trace it to one unit, it is overhead. If you can trace it to a unit, it is direct materials or direct labor.
Some overhead is fixed, such as rent and depreciation, and some moves with output, such as power and consumables. The total does not need the split, but a cost reduction project does: a lower output cuts the variable part and leaves the fixed part to spread over fewer units.
Total manufacturing cost, cost of goods manufactured and cost of goods sold
Three numbers that people swap. Each answers one question, and each adds one inventory adjustment.
| Measure | Answers | Example |
|---|---|---|
| Total manufacturing cost | What did we spend on production this period, finished or not? | $299,000 |
| Cost of goods manufactured | What did the units we finished cost? Adds the work in process change. | $290,000 |
| Cost of goods sold | What did the units we shipped cost? Adds the finished goods change. | $282,000 |
Finish and ship everything you start in a period and all three match. On a real floor they rarely do, so state which one you mean when you quote a cost.
Actual and predetermined overhead rates
The calculator divides the overhead you had by the hours you worked. That looks back and tells you what the period cost. To cost jobs while they run, you need a rate before the period is over, so plants set a predetermined rate: estimated overhead for the year divided by estimated hours of the chosen base (OpenStax, 6.1).
Illustrative example. Estimated overhead for the year is $1,008,000 and the plant expects 48,000 direct labor hours. The rate is 1,008,000 ÷ 48,000 = $21.00 an hour. A job that takes 12 labor hours is charged 12 × 21 = $252 of overhead.
In a month with 4,000 labor hours, 4,000 × 21 = $84,000 of overhead is applied. If the month's actual overhead came to $88,000, then 88,000 − 84,000 = $4,000 is under-applied: the jobs were charged less than the factory spent.
How to clear a small balance is an accounting policy, so ask Finance. When the cause is low production, IAS 2 (paragraph 13) says the unallocated fixed overhead is an expense of the period rather than a reason to load more cost on each unit. Compare the hours you assumed with the hours you ran at least once a quarter and reset the rate when they drift. For a single machine, the machine hour rate calculator builds the rate from the machine's own costs.
Mistakes that skew the total
- Purchases instead of materials used. Stock fell by $5,000 in the example, so purchases of $130,000 understate the $135,000 used.
- Mixed periods. A month of labor, a quarter of materials and a year of rent give a number that means nothing.
- Supervisors in direct labor. They support production without making the product. Their pay is overhead. Counting it twice pushes the total up.
- Office costs in overhead. Head-office rent and sales pay load every unit with cost it did not cause.
- Dividing the total by units. When work in process changes, divide the cost of goods manufactured. In the example, 299,000 ÷ 10,000 is $29.90, 3.1% above the true $29.00.
- Units that include scrap. Count good units. Scrap carried by the good ones raises the cost of each; the scrap rate calculator shows how much.
- Wages only. Payroll taxes, benefits and overtime are labor cost too.
- Leaving out depreciation because it is not cash. A press that wears out is a cost of every part it makes.
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<p style="font:13px/1.4 sans-serif"><a href="https://www.theleansuite.com/tools/total-manufacturing-cost-calculator">Total manufacturing cost calculator</a> by LeanSuite</p>How LeanSuite helps
LeanSuite does not calculate product costs or replace your accounting system. Its Loss & Cost Management imports your loss data, builds a loss tree that puts a cost on each loss and tracks the savings as you remove them, which is where the overhead and cost per unit you work out here get used.
See Loss & Cost ManagementRead more
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FAQ
Total manufacturing cost calculator: common questions
Add three numbers for the same period: direct materials used, direct labor and manufacturing overhead. Direct materials used is beginning raw materials plus purchases less ending raw materials. In the example on this page, $135,000 of materials plus $80,000 of labor plus $84,000 of overhead gives a total manufacturing cost of $299,000.
Total manufacturing cost = direct materials used + direct labor + manufacturing overhead. To get the cost of the units you actually finished, add beginning work in process and subtract ending work in process. That result is the cost of goods manufactured.
Three groups. Direct materials that end up in the product. Direct labor of the people who make it, with payroll taxes, benefits and overtime. Manufacturing overhead: indirect materials, indirect labor such as supervisors and maintenance, factory rent and utilities, and depreciation of factory equipment. Selling, office and executive costs are left out.
List every factory cost that you cannot trace to one unit, then add them up for the period. Indirect materials, indirect labor, factory rent, property tax and insurance, utilities, equipment depreciation, maintenance and other factory costs all count. In the example the seven lines add to $84,000. Office and sales costs do not belong in the list.
Divide manufacturing overhead by an activity base, usually direct labor hours or machine hours. The example's $84,000 over 4,000 direct labor hours is $21.00 per hour, or $30.00 per hour over 2,800 machine hours. Plants usually set the rate in advance from estimated overhead and estimated hours, then charge jobs at that rate.
Total manufacturing cost is everything spent on production in the period, finished or not. Cost of goods manufactured is the cost of the units completed. You get it by adding the work in process at the start and subtracting the work in process at the end. With no work in process at either end, the two numbers are the same.
Divide the cost of goods manufactured by the units completed in the same period. The example's $290,000 over 10,000 units is $29.00 a unit. Dividing the total manufacturing cost instead gives $29.90, which overstates the cost because it includes work still on the floor.
Depreciation of factory buildings and equipment is, as part of manufacturing overhead. IAS 2 names depreciation and maintenance of factory buildings and equipment among the fixed production overheads. Depreciation of office equipment is not.
Direct labor is the pay of people who work on the product itself, such as machine operators and assemblers. Indirect labor is the pay of people who support production without touching the product: supervisors, inspectors, material handlers and maintenance technicians. Direct labor is its own line; indirect labor goes into overhead.
Use the base that moves with your overhead. In a hand assembly cell, overhead follows labor hours. In a plant where machines do most of the work, power, depreciation and maintenance follow machine hours. Pick one per department, write it down and keep it for the year.
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