Manufacturing Costs and Profit

Manufacturing Costs

Direct Materials: These are the raw materials that go directly into the production of a product. This includes items like raw timber for furniture or ingredients for a food product.
Direct Labour: Direct labour cost is the cost of workers who physically construct, assemble, or modify a product.
Manufacturing Overhead: These are manufacturing costs that are not raw material or direct labour costs. Included are indirect materials and indirect labour.
Work In Progress (WIP): These are partially completed goods, still undergoing the manufacturing process.
Finished Goods: These are items of stock which are fully manufactured, completed, and ready for sale.

Manufacturing Profit

Gross Profit: This is the profit a company makes after deducting the costs of producing and selling its products, or the costs of providing its services.
Operating Profit: This is the profit from a firm’s core business operations, excluding deductions of interest and tax.
Net Profit: This is the actual profit after working expenses not included in the calculation of gross or operating profit have been paid.

Analysis of Manufacturing Costs and Profit

Cost of Goods Sold (COGS): This is the total cost of all the goods sold during a specific time period.
Break-Even Analysis: This is a calculation that determines the point at which revenue received equals the costs associated with receiving the revenue.
Profit Margin: This is a profitability ratios calculated as net income divided by revenue, or net profits divided by sales.
Budgeting and Forecasting: This involves making a plan for where the company’s money will go in upcoming periods.

Outcome of Manufacturing Costs and Profit Analysis

Financial Statement: After calculating all costs and profits, a financial statement is prepared to provide a snapshot of the financial health of a business.
Costing Reports: These reports can provide a detailed analysis of where funds are spent and areas of wastage.
Profit & Loss Statement: This gives a clear picture of the financial performance of a company over time.
Balance Sheet: The manufacturing cost and profit balances will influence the final assets, liabilities and owners’ equity figures determined.