Manufacturing Costs
Breakdown
BREAKDOWN
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Importance
Your company wants to make money!
Profit and price (and ultimately your salary)
depend on how you manage manufacturing
costs.
You will have to address costs and economics
in presentations about your work
Manufacturing Cost Analysis 3
Overview
Non-Manufacturing
Costs
Manufacturing
Costs
Manufacturing Cost Analysis 3
Direct Materials
Definition: Any material that is a part of the finished
product that significantly adds to the weight or volume of
the item
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Direct Materials
Definition: Any material that is a part of the finished
product that significantly adds to the weight or volume of
the item
Examples:
◦ Wood used to make furniture
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Direct Materials
Definition: Any material that is a part of the finished
product that significantly adds to the weight or volume of
the item
Examples:
◦ Wood used to make furniture
◦ Plastic used to make a Frisbee
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Direct Materials
Definition: Any material that is a part of the finished
product that significantly adds to the weight or volume of
the item
Examples:
◦ Wood used to make furniture
◦ Plastic used to make a Frisbee
◦ Material used to make the soles of shoes
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Indirect Materials
Definition: Material that does not significantly add weight
or volume to the product, or that is used for something
indirectly related to the product.
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Indirect Materials
Definition: Material that does not significantly add weight
or volume to the product, or that is used for something
indirectly related to the product.
Examples:
◦ Glue
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Indirect Materials
Definition: Material that does not significantly add weight
or volume to the product, or that is used for something
indirectly related to the product.
Examples:
◦ Glue
◦ Screws
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Indirect Materials
Definition: Material that does not significantly add weight
or volume to the product, or that is used for something
indirectly related to the product.
Examples:
◦ Glue
◦ Screws
◦ Cleaning materials
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Indirect Materials
Definition: Material that does not significantly add weight
or volume to the product, or that is used for something
indirectly related to the product.
Examples:
◦ Glue
◦ Screws
◦ Cleaning materials
◦ Lubricants
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Indirect Materials
Definition: Material that does not significantly add weight
or volume to the product, or that is used for something
indirectly related to the product.
Examples:
◦ Glue
◦ Screws
◦ Cleaning materials
◦ Lubricants
◦ Shelves used to store paint, tools, or other items
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Direct Labor
Definition: Any labor done directly on the product that
affects the physical properties of the item
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Direct Labor
Definition: Any labor done directly on the product that
affects the physical properties of the item
Examples:
◦ Putting together furniture
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Direct Labor
Definition: Any labor done directly on the product that
affects the physical properties of the item
Examples:
◦ Putting together furniture
◦ Cutting chocolate bars into special shapes
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Direct Labor
Definition: Any labor done directly on the product that
affects the physical properties of the item
Examples:
◦ Putting together furniture
◦ Cutting chocolate bars into special shapes
◦ Painting bicycle frames
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Direct Labor
Definition: Any labor done directly on the product that
affects the physical properties of the item
Examples:
◦ Putting together furniture
◦ Cutting chocolate bars into special shapes
◦ Painting bicycle frames
◦ Injection molding plastic smartphone cases
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Indirect Labor
Definition: Labor important to production that is not
performed directly on the item being produced.
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Indirect Labor
Definition: Labor important to production that is not
performed directly on the item being produced.
Examples:
◦ Materials purchasing
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Indirect Labor
Definition: Labor important to production that is not
performed directly on the item being produced.
Examples:
◦ Materials purchasing
◦ Quality control
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Indirect Labor
Definition: Labor important to production that is not
performed directly on the item being produced.
Examples:
◦ Materials purchasing
◦ Quality control
◦ Janitorial labor
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Indirect Labor
Definition: Labor important to production that is not
performed directly on the item being produced.
Examples:
◦ Materials purchasing
◦ Quality control
◦ Janitorial labor
◦ Production management
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Indirect Labor
Definition: Labor important to production that is not
performed directly on the item being produced.
Examples:
◦ Materials purchasing
◦ Quality control
◦ Janitorial labor
◦ Production management
◦ Tech support
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Manufacturing Overhead
Definition: Total of all indirect costs that are required in
order to manufacture a product.
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Manufacturing Overhead
Definition: Total of all indirect costs that are required in
order to manufacture a product.
Examples of included costs:
◦ Indirect Materials
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Manufacturing Overhead
Definition: Total of all indirect costs that are required in
order to manufacture a product.
Examples of included costs:
◦ Indirect Materials
◦ Indirect Labor
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Manufacturing Overhead
Definition: Total of all indirect costs that are required in
order to manufacture a product.
Examples of included costs:
◦ Indirect Materials
◦ Indirect Labor
◦ Depreciation of machinery and property values
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Manufacturing Overhead
Definition: Total of all indirect costs that are required in
order to manufacture a product.
Examples of included costs:
◦ Indirect Materials
◦ Indirect Labor
◦ Depreciation of machinery and property values
◦ Manufacturing plant property taxes
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Review
Manufacturing Cost Analysis 3
Homework Problem (MC 3)
Give a definition for each cost classification below. Also give 2
examples for each.
◦ A) Direct Labor
◦ B) Direct Materials
◦ C) Indirect Labor
◦ D) Indirect Materials
◦ E) Manufacturing Overhead
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3
Sources:
Direct / Indirect Materials
◦ http://www.microbuspub.com/pdfs/chapter4.pdf
◦ http://en.wikipedia.org/wiki/Direct_materials_cost
◦ http://www.accountingtools.com/questions-and-answers/what-are-indirect-materials.html
Direct / Indirect Labor
◦ http://www.microbuspub.com/pdfs/chapter4.pdf
◦ http://www.accountingtools.com/definition-direct-labor
◦ http://www.accountingtools.com/definition-indirect-labor
Manufacturing Overhead
◦ http://www.microbuspub.com/pdfs/chapter4.pdf
◦ http://www.accountingcoach.com/manufacturing-overhead/explanation
◦ http://www.accountingtools.com/questions-and-answers/what-is-manufacturing-overhead.html
Images
◦ http://www.freeimages.com
Manufacturing
Cost Analysis
Dimensioning & Tolerances
2 3