How do you calculate the manufacturing cost of a product?
Mia Phillips
Updated on February 19, 2026
To calculate total manufacturing cost you add together three different cost categories: the costs of direct materials, direct labour and manufacturing overheads. Expressed as a formula, that’s: Total manufacturing cost = Direct materials + Direct labour + Manufacturing overheads.
How do you calculate product cost example?
Formula
- Product Cost Formula = Direct Labor + Direct Material + Factory Overheads.
- Factory OH = Indirect Labor + Indirect Material + Other Factory OH.
- Product Cost per Unit Formula = (Total Product Cost ) / Number of Units Produced.
- Total Raw Material = Raw Material Required for Production + Ending Raw Material Inventory.
What are the different types of product costs?
The three basic categories of product costs are detailed below: 1 1. Direct material. Direct material costs are the costs of raw materials or parts that go directly into producing products. For example, if Company A 2 2. Direct labor. 3 3. Manufacturing overhead.
How are product costs treated on the balance sheet?
Product costs are treated as inventory (an asset) on the balance sheet and do not appear on the income statement as costs of goods sold until the product is sold. For example, a company manufactures 50 units of widgets at a unit product cost of $5. On the balance sheet, there would be a $5 x 50 = $250 increase in inventory.
What does cost of goods manufactured mean in accounting?
Cost of Goods Manufactured (COGM) Cost of Goods Manufactured, also known to as COGM, is a term used in managerial accounting that refers to a schedule or statement that shows the total production costs for a company during a specific period of time.
Which is an example of a manufacturing overhead cost?
3. Manufacturing overhead. Manufacturing overhead costs include direct factory-related costs that are incurred when producing a product, such as the cost of machinery and the cost to operate the machinery. Manufacturing overhead costs also include some indirect costs, such as the following:
