How to Determine Material Handling Costs

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Warehouse expenses can make up a significant portion of a company's material handling costs.
Warehouse expenses can make up a significant portion of a company's material handling costs. (Image: monkeybusinessimages/iStock/Getty Images)

Material handling costs are a crucial component of a manufacturing company's profit calculations. If these are overlooked when estimating production costs, the company will overestimate its potential profit. Analyzing material handling costs also helps the company take measures to reduce them in the future. Costs vary by industry and location, so you must adjust your estimates accordingly.

Shipping and Packaging Costs

Start with the costs for shipping and packaging your materials. Include service fees from any carriers your company hired and their subcontractors. Depending on the sale terms, you may be able to exclude outbound shipping costs from your calculations. These costs are often passed on to the customer or retailer.

Storage and Handling Costs

Material handling costs should also include warehouse and other storage expenses. If your materials require refrigeration, make sure your calculation covers the cost of cold storage. Include the salaries of any in-house employees who process or ship materials.

Allocating to Products

If your company ships more than one product at a time, you may need to split your handling costs between them to get an accurate estimate of each product's actual cost. You can allocate the costs to an entire batch or calculate a per-unit price, depending on your budgeting and forecasting needs.

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