Total manufacturing cost is the total sum of a budget that is needed to complete production during one financial period.
Calculating the total manufacturing cost allows a firm to determine the amount its spending in the manufacture. A company can use this figure to monitor the percentage of its revenues that go towards manufacturing costs.
Formula to calculate total manufacturing cost.
Direct material cost is the cost of the raw materials and components used to create a product.
Direct labor cost is wages that are incurred in order to produce goods or provide services to customers.
Manufacturing overhead is all indirect costs incurred during the production process.
Example:
Calculate the total manufacturing cost of Delamere Yoghurt Making Company if direct material cost is Sh. 5 million, direct labor cost is Sh. 800,000 and the manufacturing overhead amounts to Sh. 1.2 million.
Therefore, the total manufacturing cost is Sh. 7,000,000.
