SECTION 14-1
Manufacturing
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Section Objective
Compute:
 prime cost of manufacturing an
item
Key Words to Know
manufacturer
Makes, or produces, a product.
direct material cost
The cost of the goods or materials used to make a
product.
Key Words to Know
direct labor costs
The cost of the labor used to make a product, such
as wages paid to employees.
prime cost
The total of the direct material cost and the direct
labor cost used to make a product, often expressed
on a per-unit basis.
Formula
Prime Cost = Direct Material + Direct Labor
per Item
Cost per Item Cost per Item
Do Now
Electric Supply, Inc., produces aluminum
circuit housings. The machine operator
stamps 20 housings from each strip of
aluminum. Each strip costs $1.80. The operator
can stamp 720 housings per hour. The direct
labor charge is $19.50 per hour.
To the nearest tenth of a cent, what is the
prime cost of manufacturing a circuit
housing?
Answer: Step 1
Find the direct material cost per item.
$1.80 ÷ 20 = $0.09
Answer: Step 2
Find the direct labor cost per item.
$19.50 ÷ 720 = $0.02708 or $0.027
Example 1 Answer: Step 3
Find the prime cost per item.
Direct Material + Direct Labor
Cost per Item
Cost per Item
$0.09 + $0.027 = $0.117
Do Now 2
Jenna Fields is a die cut machine operator. She
makes 105 shoe soles from one piece of rubber.
Each sheet of rubber costs $3.95. Jenna is able to
make one every 5 seconds. The direct labor cost is
$17.50 per hour.
What is the prime cost of manufacturing one shoe
sole to the nearest cent?
Practice 1 Answer
$0.62
END OF SECTION 14-1
Manufacturing
SECTION 14-2
Break-Even Analysis
Section Objective
Calculate:
 break-even point in the number of
manufactured units
Key Words to Know
break-even analysis-
Determining how many units of a
product must be made and sold to
cover the cost of producing it.
Key Words to Know
break-even pointThe point where income from sales on a
product equals what it cost to produce the
product.
Key Words to Know
fixed costs
Production costs that remain the same no
matter how much you produce, such as rent
and salaries.
Key Words to Know
variable costs
The costs of producing a product that vary
directly with the number of units
produced, such as raw materials and
packaging.
Formula
Break-Even Point in Units =
Total Fixed Costs ____ ________
Selling Price per Unit – Variable Costs per
Unit
Do Now
Token Metal Products manufactures can
openers. They plan to manufacture 750,000
hand-held can openers to be sold at $0.44
each. The fixed costs are estimated to be
$142,570. Variable costs are $0.19 per unit.
How many can openers must be sold for
Token Metal Products to break even?
Answer:
Step: Find the break-even point in units.
Total Fixed ÷ (Selling Price –Variable Costs)
Costs
( per Unit
per Unit )
$142,570.00 ÷ ($0.44 − $0.19) =
$142,570.00 ÷ $0.25 = 570,280
Practice 1
Yell Textiles manufactures rugs. It plans to
manufacture small rugs to be sold at $22.99
each. The fixed costs are estimated to be
$265,490. Variable costs are $16.82 per unit.
How many rugs must be sold for Yell
Textiles to break even?
Practice 1 Answer
43,029
END OF SECTION 14-2
Break-Even Analysis