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?

Aggregate capacity planning

In the context of capacity planning, capacity refers to a firm’s labor and machine resources. Aggregate capacity planning is the process of devising a plan for providing a production capacity scheme to support the intermediate range sales forecast.

As a forecast demand becomes known in the form of customer orders, aggregate capacity plan may have to be revised upwards and downwards to avoid either overloaded or underloaded facilities. The aggregate capacity plan checks whether there is sufficient capacity to meet the demand expressed in the aggregate output plan.

The planning lays down how the capacity will be utilized and how over or under capacity will be corrected by using different strategies.

While the basic capacity is fixed, in the short run it could be augmented by overtime or running an extra shift or by subcontracting. The labor inputs could be varied.

Aggregate capacity planning models are often found in process industries because firms in these industries typically focus on capacity first and then schedule materials and labor.
Aggregate capacity planning