The total manufacturing cost is the amount businesses spend to manufacture products. This metric is crucial for companies in the manufacturing sector. Having access to this information on the [balance sheet](https://www.masterclass.com/articles/what-is-a-balance-sheet) is essential to making important decisions about inventory, pricing, sales initiatives, sourcing, and other areas of effective management.

Total manufacturing cost is a crucial metric for any business that produces goods because it gives a detailed picture of manufacturing costs over a given period. As a company grows and processes become more complex or bigger in scale, being aware of the total manufacturing cost is crucial to monitor the business, keep costs down, and find opportunities for maximizing efficiency.

The total manufacturing cost, the cost of goods manufactured, and the cost of goods sold are related but distinct pieces of information. Understanding the differences between each is critical for having a clear picture of your manufacturing business and creating an accurate [income statement](https://www.masterclass.com/articles/how-to-read-and-understand-an-income-statement):

- __Total manufacturing cost__: Total manufacturing cost is the total amount of direct material costs, direct labor, and manufacturing overhead over a given period.
- __Cost of goods manufactured (COGM)__: This metric only counts products finished during a given period. The total does not include unfinished products—these are considered works in progress for accounting purposes.
- __Cost of goods sold (COGS)__: [Cost of goods sold](https://www.masterclass.com/articles/cost-of-goods-sold-explained) refers only to the manufacturing costs of products sold in a given accounting period. Calculating COGS factors in the COGM, but excludes any unsold units.

To calculate the total manufacturing cost, add up the direct material costs, direct labor costs, and manufacturing overhead costs:

1. __Begin with direct material costs__. Direct material costs directly relate to the finished products manufactured by a company. For example, if a company produces toasters, the stainless steel to make the exterior of the units is one of the direct material costs. Other costs of raw materials might include the metal elements for heating and plastic for the knobs and handles.
2. __Add direct labor costs__. Direct labor costs include payroll taxes and wages for workers in the production process. Direct labor includes jobs in manufacturing; accounting, managerial, and other staff are indirect labor.
3. __Add cost of manufacturing overhead__. The overhead expenses is everything else necessary to keep the business running. Overhead expenses might include cleaning staff salaries, supervision, contractor work related to production, infrastructure and equipment depreciation, utilities, rent or mortgage, and general upkeep supplies.

When trying to figure out your total manufacturing cost, it can be helpful to know the difference between direct and indirect costs. Direct costs involve expenses in the manufacturing of the goods your company produces. If a material is necessary to keep the assembly line running, it is a direct production cost. 

Indirect costs do not feature directly in manufacturing the finished product, such as general factory supplies and indirect labor. Indirect costs might also include materials that are part of the finished product but in insignificant amounts per production unit. For example, glue and staples are indirect materials in upholstered furniture manufacturing.

Get the [MasterClass Annual Membership](https://www.masterclass.com/) for exclusive access to video lessons taught by business luminaries, including Sara Blakely, Chris Voss, Robin Roberts, Bob Iger, Howard Schultz, Anna Wintour, and more.
Calculating the total manufacturing cost is essential for understanding a company’s financial situation. Learn more below about how to calculate and use this metric.

Calculating the total manufacturing cost is essential for understanding a company’s financial situation. Learn more below about how to calculate and use this metric.

How to Calculate Total Manufacturing Cost

The total manufacturing cost is the amount businesses spend to manufacture products. This metric is crucial for companies in the manufacturing sector. Having access to this information on the <a href='https://www.masterclass.com/articles/what-is-a-balance-sheet' target='_self' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/what-is-a-balance-sheet","linkCopy":"balance sheet","category":null}'>balance sheet</a> is essential to making important decisions about inventory, pricing, sales initiatives, sourcing, and other areas of effective management.

What Is Total Manufacturing Cost? 

Total manufacturing cost is a crucial metric for any business that produces goods because it gives a detailed picture of manufacturing costs over a given period. As a company grows and processes become more complex or bigger in scale, being aware of the total manufacturing cost is crucial to monitor the business, keep costs down, and find opportunities for maximizing efficiency.

Why Is Total Manufacturing Cost Significant? 

The total manufacturing cost, the cost of goods manufactured, and the cost of goods sold are related but distinct pieces of information. Understanding the differences between each is critical for having a clear picture of your manufacturing business and creating an accurate <a href='https://www.masterclass.com/articles/how-to-read-and-understand-an-income-statement' target='_self' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/how-to-read-and-understand-an-income-statement","linkCopy":"income statement","category":null}'>income statement</a>:<ul class="mc-m-4 list-styled"><li class="">Total manufacturing cost: Total manufacturing cost is the total amount of direct material costs, direct labor, and manufacturing overhead over a given period. </li><li class="">Cost of goods manufactured (COGM): This metric only counts products finished during a given period. The total does not include unfinished products—these are considered works in progress for accounting purposes. </li><li class="">Cost of goods sold (COGS): <a href='https://www.masterclass.com/articles/cost-of-goods-sold-explained' target='_self' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/cost-of-goods-sold-explained","linkCopy":"Cost of goods sold","category":null}'>Cost of goods sold</a> refers only to the manufacturing costs of products sold in a given accounting period. Calculating COGS factors in the COGM, but excludes any unsold units. </li></ul>

Total Manufacturing Cost vs. Cost of Goods Manufactured vs. Cost of Goods Sold

To calculate the total manufacturing cost, add up the direct material costs, direct labor costs, and manufacturing overhead costs:<ol class="mc-m-4"><li class="mc-my-4"> 1. Begin with direct material costs. Direct material costs directly relate to the finished products manufactured by a company. For example, if a company produces toasters, the stainless steel to make the exterior of the units is one of the direct material costs. Other costs of raw materials might include the metal elements for heating and plastic for the knobs and handles. </li><li class="mc-my-4"> 2. Add direct labor costs. Direct labor costs include payroll taxes and wages for workers in the production process. Direct labor includes jobs in manufacturing; accounting, managerial, and other staff are indirect labor. </li><li class="mc-my-4"> 3. Add cost of manufacturing overhead. The overhead expenses is everything else necessary to keep the business running. Overhead expenses might include cleaning staff salaries, supervision, contractor work related to production, infrastructure and equipment depreciation, utilities, rent or mortgage, and general upkeep supplies. </li></ol>

When trying to figure out your total manufacturing cost, it can be helpful to know the difference between direct and indirect costs. Direct costs involve expenses in the manufacturing of the goods your company produces. If a material is necessary to keep the assembly line running, it is a direct production cost. Indirect costs do not feature directly in manufacturing the finished product, such as general factory supplies and indirect labor. Indirect costs might also include materials that are part of the finished product but in insignificant amounts per production unit. For example, glue and staples are indirect materials in upholstered furniture manufacturing.

Direct vs. Indirect Costs: What’s the Difference? 

Get the <a href='https://www.masterclass.com/' target='_self' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/","linkCopy":"MasterClass Annual Membership","category":null}'>MasterClass Annual Membership</a> for exclusive access to video lessons taught by business luminaries, including Sara Blakely, Chris Voss, Robin Roberts, Bob Iger, Howard Schultz, Anna Wintour, and more.

Want to Learn More About Business?

Calculating the total manufacturing cost is essential for understanding a company’s financial situation. Learn more below about how to calculate and use this metric.

Calculating the total manufacturing cost is essential for understanding a company’s financial situation. Learn more below about how to calculate and use this metric.
