Production Cost Formula:

Direct Material
Direct Labor
Add: Overhead on Manufacturing (Indirect labor Cost + Indirect Material cost + Other variab
Production Cost

Let us take the example of mfg business that incurse 25k indirect labor. It incurs 30k in manufacturing o
help the business to determine the overall cost of production

DM 50,000.00
DL 25,000.00
Mfg Cost 30,000.00
Production 105,000.00
Material cost + Other variable overhead costs)

urs 30k in manufacturing overhead and 50k in the Direct material cost.
Total Cost

Total Cost = Average fixed cost x average variable cost) x no# of units produced

Ex:
Total fixed cost of production for the company is 10k per month while the average variable cost per unit is 5.
1.) 2k units
2.) 3k units
3.) 5k units

1.) 2k units

Total cost of production is calculated using this formula: Total Cost = Average fixed cost x average variabl

Total Fixed cost

Average variable cost per unit

Total Cost = Total Fixed cost + Average variable cost per unit * Qty of U

Total Cost = 10, 000 + 5 * 2k

Total Cost = 10,000 + 10,000

Total Cost = 20,000

2.) 3k units
Total Cost = Total Fixed cost + Average variable cost per unit * Qty of U

Total Fixed cost

Average variable cost per unit

Total Cost = 10, 000 + 5 * 3k

Total Cost = 25,000

3.) 5k units
Total Cost = Total Fixed cost + Average variable cost per unit * Qty of U

Total Fixed cost

Average variable cost per unit

Total Cost = 10, 000 + 5 * 5k

Total Cost = 35,000
erage variable cost per unit is 5.

= Average fixed cost x average variable cost) x no# of units produced

10,000.00
5

erage variable cost per unit * Qty of Units Produced

erage variable cost per unit * Qty of Units Produced

10,000.00
5

erage variable cost per unit * Qty of Units Produced

10,000.00
5
Average Cost = Total Cost of Production
No# of Units Produced

Ex;

Mfg plan of asf inc.

Total fixed cost of production was 100k
variable cost of production was 20 per unit
Determine the average cost of production if the company manufactured 20k units during the year.

Variable cost per unit 20.00

No# of units produced 20,000.00
Total Fixed cost of production 100,000.00
Total variable cost of production 400,000.00

Total Cost of prod = Total fixed cost + total variable cost

Variable cost per unit 20.00

No# of units produced 20,000.00
Total Fixed cost of production 100,000.00
Total variable cost of production 400,000.00
Total Cost of production 500,000.00

Average Cost = Total Cost of Production

No# of Units Produced

Average Cost = 500,000.00

20,000.00

Average Cost = 25