# Total Manufacturing Cost Formula Calculator (Direct Materials + Direct Labor + Overhead)

> Source: https://netray.co/tools/total-manufacturing-cost-formula-calculator
> Publisher: Netray (netray.co), AI and integration engineering for ERP and manufacturing systems.
> Section: Free Tools

## Short answer

Calculates total manufacturing cost, cost of goods manufactured and cost per unit from materials, labor hours, overhead rate and work in process.

## Category

cost-finance

## Industry

Discrete Manufacturing

## Audience

- Cost accountant
- Controller
- Plant manager

## Tool

**Kind:** calculator

**Currency:** $

**Inputs:**

#### Raw materials, beginning inventory

**Key:** rm_open

**Type:** number

**Default:** 40000

**Min:** 0

**Step:** 1000

#### Raw material purchases

**Key:** rm_purch

**Type:** number

**Default:** 180000

**Min:** 0

**Step:** 1000

#### Raw materials, ending inventory

**Key:** rm_close

**Type:** number

**Default:** 35000

**Min:** 0

**Step:** 1000

#### Direct labor hours

**Key:** dl_hours

**Type:** number

**Default:** 4200

**Min:** 0

**Step:** 50

**Unit:** hours

#### Direct labor cost per hour

**Key:** wage

**Type:** number

**Default:** 28

**Min:** 0

**Step:** 1

**Unit:** per hour

**Help:** Wage plus payroll burden

#### Overhead rate per direct labor hour

**Key:** oh_rate

**Type:** number

**Default:** 36

**Min:** 0

**Step:** 1

**Unit:** per hour

**Help:** Budgeted overhead divided by budgeted labor hours

#### Work in process, beginning

**Key:** wip_open

**Type:** number

**Default:** 22000

**Min:** 0

**Step:** 1000

#### Work in process, ending

**Key:** wip_close

**Type:** number

**Default:** 26000

**Min:** 0

**Step:** 1000

#### Units completed

**Key:** units

**Type:** number

**Default:** 9500

**Min:** 1

**Step:** 100

**Unit:** units

**Outputs:**

#### Direct materials used

**Key:** dm_used

**Expr:** rm_open + rm_purch - rm_close

**Format:** currency

**Description:** Beginning inventory plus purchases minus ending inventory

#### Direct labor cost

**Key:** dl

**Expr:** dl_hours * wage

**Format:** currency

#### Manufacturing overhead applied

**Key:** oh

**Expr:** dl_hours * oh_rate

**Format:** currency

#### Total manufacturing cost

**Key:** tmc

**Expr:** dm_used + dl + oh

**Format:** currency

**Primary:** true

**Description:** Direct materials + direct labor + overhead

#### Cost of goods manufactured

**Key:** cogm

**Expr:** tmc + wip_open - wip_close

**Format:** currency

**Primary:** true

**Description:** Adjusted for the change in work in process

#### Cost per unit

**Key:** unit_cost

**Expr:** cogm / units

**Format:** currency

#### Prime cost

**Key:** prime

**Expr:** dm_used + dl

**Format:** currency

**Description:** Direct materials plus direct labor

#### Conversion cost

**Key:** conv

**Expr:** dl + oh

**Format:** currency

**Description:** Direct labor plus overhead

**Chart:**

#### Cost per unit vs overhead rate

**Type:** line

**X:** oh_rate

**From:** 5

**To:** 80

**Steps:** 30

**Series:**

- unit_cost

**Disclaimer:** Educational calculation. Follow your own cost accounting policy and applicable accounting standards for reporting.

## Content

**Intro:** Total manufacturing cost is direct materials used plus direct labor plus manufacturing overhead. Adjust for the change in work in process to get cost of goods manufactured, and divide by units for cost per unit. This calculator works through each step.

**Sections:**

#### The formulas

**Body:** Direct materials used equals beginning raw materials plus purchases minus ending raw materials. Total manufacturing cost equals direct materials used plus direct labor plus manufacturing overhead. Cost of goods manufactured (COGM) equals total manufacturing cost plus beginning work in process minus ending work in process. Cost per unit equals COGM divided by units completed. Overhead is usually applied with a predetermined rate, such as budgeted overhead divided by budgeted direct labor hours.

**Bullets:**

- Direct materials used = opening + purchases - closing
- Total manufacturing cost = DM + DL + overhead
- COGM = TMC + opening WIP - closing WIP
- Cost per unit = COGM / units completed

#### How to use the calculator

**Body:** Enter the raw material inventory balances and purchases for the period. Enter direct labor hours and the cost per hour including payroll burden. Enter your overhead rate per direct labor hour, then the opening and closing work in process and the units completed. The results show each cost layer plus prime cost (materials and labor) and conversion cost (labor and overhead). The chart sweeps the overhead rate to show how sensitive unit cost is to it, which is useful when budgets change.

#### Worked example

**Body:** With 40,000 opening materials, 180,000 purchases and 35,000 closing, materials used are 185,000. Direct labor is 4,200 hours at 28, which is 117,600, and overhead at 36 per hour is 151,200. Total manufacturing cost is 453,800. Opening WIP of 22,000 and closing WIP of 26,000 reduce COGM to 449,800. With 9,500 units completed the cost per unit is about 47.35. Materials make up about 41% of total manufacturing cost in this example.

#### Pulling the inputs from ERP

**Body:** In an ERP, direct materials are issues to production orders, labor comes from reported operation time, and overhead is absorbed through burden rates on work centers. The WIP balance is the open production order cost. Differences between this calculation and your ERP usually come from variances: overhead under or over-absorbed, scrap, or costing at standard rather than actual. Run it for a period and compare with the ERP cost of goods manufactured figure.

**Bullets:**

- Check that material issues match inventory movements
- Separate overhead absorbed from overhead incurred
- Report variances rather than hiding them in unit cost

**Cta:** If your job costs and work in process are in an ERP, Netray can add a private AI layer on your own servers that answers cost questions from live data. The calculator works independently of it.

**Faq:**

#### What is the formula for total manufacturing cost?

**Answer:** Total manufacturing cost equals direct materials used plus direct labor plus manufacturing overhead. Direct materials used is beginning raw materials plus purchases minus ending raw materials. This excludes selling and administrative expenses.

#### What is the difference between total manufacturing cost and COGM?

**Answer:** Total manufacturing cost is what was spent in the period on materials, labor and overhead. COGM adjusts it for work in process: add the beginning WIP and subtract the ending WIP, giving the cost of units completed.

#### How do I find manufacturing overhead?

**Answer:** Overhead includes indirect materials, indirect labor, depreciation, utilities, maintenance and factory rent. Apply it to products using a predetermined rate, for example budgeted overhead divided by budgeted direct labor hours or machine hours.

#### How do I calculate cost per unit?

**Answer:** Divide cost of goods manufactured by units completed in the period. If you have partially completed units, use equivalent units for process costing. This calculator uses completed units and is suited to job or batch production.

## Search terms

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