How to Calculate the Total Manufacturing Cost in Accounting

How to Calculate the Total Manufacturing Cost in Accounting thumbnail
Calculating manufacturing cost

There are two main types of accounting: cost and financial. Financial accountants are primarily responsible for the creation of financial statements (external reporting) whereas cost accountants are primarily responsible for budgetary controls (internal reporting). One commonly used metric in cost accounting is manufacturing costs. Manufacturing costs are generally considered to be the sum of direct materials, direct labor and associated overhead.


    • 1

      Calculate direct materials. Take the beginning value (monthly) of inventory and add any purchases during the month.

    • 2

      Subtract ending material inventory. That is, if beginning inventory is $10,000, ending inventory is $12,000 and $2,000 in purchases are made over the month, the answer is $10,000 + $2,000 - $12,000. The answer is the cost of materials used. In this case, the answer is $0.

    • 3

      Calculate direct labor amount. Multiply the number of direct labor hours by hourly pay. For instance, if your employees logged 200 hours of work on a project and the hourly pay rate is $10 an hour, the total direct labor cost is $2,000 (200 x $10).

    • 4

      Determine overhead amount. This can be a fixed expense (same as the prior month) or a percentage of sales.

    • 5

      Sum Steps 1 through 4 for the total current manufacturing costs.

    • 6

      Add inventory that is categorized as "work in process" to total current manufacturing costs to obtain total manufacturing costs.

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