COST ANALYSIS -GOODS MANUFACTURED

Every product that is sold in the market  has its cost i.e cost of producting or manufacturing it.
For every manufacturing business it is crucial to ascertain such costs as it is the only means that will guide the producer to decide the selling price at which it has to be sold to the market intermediaries (i.e agents, wholesalers and retailers).

In order to cost of goods sold we must know how to calculate the manufacturing cost.

Manufacturing costs involves 3 main elements:

• Raw materials used
• Direct labour
• Manufacturing overheads
  
  
  
  
  
  
  

Inorder to have a clear understanding let's know about the elements in a descriptive way:

(A) RAW MATERIAL USED:
      Raw materials are the inputs(or ingredients)that are used to form a product.
       Without raw material a production process cannot be initiated (or started).

It can be expressed through a formula:

(B) DIRECT LABOUR:
         This involves wages, salaries or any other form of remuneration that is paid to skilled or unskilled labour who are directly related with the production process.
     

(C) MANUFACTURING OVERHEADS:
      It involves any other form of expenses that are incurred for the purpose of smooth production process.These are indirect in nature as they do not add directly to production but it's essential for the process.
  For example:

• Rent of factory building
• Electricity charges
• Quality control
• Indirect factory supplies
• Indirect labour

   In a production process there may be work in process I.e.semi finished goods at the beginning and at the end and cost of such work in process is also taken into consideration for calculating cost of goods manufactured: