How to Calculate the Manufacturing Gross Profit
The "manufacturing gross profit" is the resulting figure after deducting the cost of raw materials from the sale of manufactured products. Manufacturing businesses use this figure to track profit trends, to price their products and to monitor the sales goals of the manufacturing department or organization. Calculating manufacturing gross profit entails taking into consideration fixed and variable costs of manufacturing, the total cost of production, and deducting these from the net sales of the finished goods
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Instructions
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Identify the variable costs of manufacturing, which are costs directly related to manufacturing a product but fluctuate depending on the quantity of the product a firm manufactures. Take into consideration factors such as: costs of raw materials used, indirect labor such as hiring workers on a per-needs basis, packaging and transportation.
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List the fixed costs of manufacturing, which typically do not change much. Identify costs such as factory lighting, heating, insurance, rent, maintenance, direct labor, depreciation of factory assets such as: machinery, factory building, furniture and vehicles.
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Calculate the total cost of production by adding the prime costs to the factory overheads. Note that the prime cost is equal to the sum of direct raw material, direct labor and direct expenses. The factory overhead is the total sum of the fixed costs of manufacturing. Thus, Total Cost of Production= Prime Cost + Factory Overhead.
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Determine the net sales of the final manufactured product. Take into consideration factors, such as damaged or missing goods, discounts and returns on the goods. Calculate the net sales as Net Sales=Total Sale of Goods- Damaged Goods+ Missing Goods+ Discounts+ Returned Goods.
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Subtract the total cost of production from the net sales to arrive at the manufacturing gross profit. Utilize the equation -- Manufacturing Gross Profit=Net Sales-Total Cost of Production. Record the manufacturing gross profit in the manufacturing accounts as well as in the profit/loss statement.
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