What is Total Manufacturing Cost?

Total manufacturing cost is the amount that a company spends on producing goods in a specific period It includes direct labor direct materials and manufacturing overheads.

Manufacturing consists of activities and processes that convert raw materials into finished goods. Manufacturing costs typically includes: a) manufacturing facility capital investments; b) raw material and energy purchases; c) fixed and variable operations and maintenance costs including labor; d) financing costs, and e) taxes.

Manufacturing cost pertains to the cost of manufacturing a product. This pertains to the direct costs associated in the production process and should not be confused with other period costs.

Direct Materials Used + Direct Labor +Total Manufacturing Overhead =Total Manufacturing Costs

Direct materials are the actual physical materials that need to be purchased, refined and consumed to make the product.

Direct labor cost can be defined as the cost of workers who can be easily identified with the unit of production. Types of labor who are considered to be part of the direct labor cost are the assembly workers on an assembly line.

Firm Overhead Cost: This is everything from the electricity to the maintenance and depreciation of equipment.
What is Total Manufacturing Cost?

Transportation in supply chain

To satisfy the daily needs of life, people consume resources. These resources include basic daily necessities such as water, food and cloths. Because these resources are not readily available everywhere on the surface of Earth they need to be moved to different locations. This movement is called transpiration.

Transportation provides a significant link between the various stages in the supply chain, whereas distribution is the driver of the links. By nature transpiration and thus distribution involve at least two stages in the supply chain: supply-manufacturers and manufacturer-wholesaler distribution system.

Given its significant to the supply chain transportation should be better planned, managed and leveraged by the supply chain professional.

Transportation-related decisions significantly affect cost as well as responsiveness of the supply chain.

Transportation cost is a significant component of the supply chain cost for most manufacturing firms. A thorough understating of the cost structures in transportation allows a firm to make relevant trade-off when taking relevant decision.

Transportation creates spatial utility by reducing distance gaps among suppliers, producers, and consumers. Transportation allows raw materials and parts/components needed for production to be shipped to producers’ locations. Likewise, transportation allows finished goods made by producers to be shipped to consumer’s locations.

With the growth in e-commerce and the associated home delivery of products, transportation costs have become even more significant in retailing.

 From the book industry to the grocery industry, on-line firms are delivering products in small packages to the customer’s home instead of full trucks to a retail outlet.
Transportation in supply chain

First in first out method in inventory

In business, the term inventory is used to describe the goods that a company has in its possession at any given time.

For companies engaged in manufacturing activities inventories are divided into raw materials, partially completed products, and finished goods.

The First In, First Out or FIFO method assumes that the goods that are purchased first are then issued or sold first.

The first idea that comes to mind when most people think about fairness is that whoever has been waiting the longest should be served first.

Queues are a natural model for many everyday phenomena, and they play a centrals role in numerous application.

So the cost of the inventory item is based on the most recent purchases. This method is widely used because the value of the inventory should be the closest to the cost of actually replacing the items in the inventory. 

FIFO is used to manage assumptions of cost flows related to inventory, stock repurchases and various other counting purposes.

This method assumes the first goods purchased are made the first goods sold. In some companies, the first units in must be the first out to avoid losses from spoilage.

Such items as fresh dairy products, fruits and vegetables should be sold on a FIFO basis.
First in first out method in inventory