Supervisor Essentials

Basics of Manufacturing Costs 140

This class describes the basic costs associated with manufacturing and how these costs are typically controlled.

  • Difficulty Beginner

  • Format Online

  • Number of Lessons 17

  • Language English


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Course Outline
  • Objectives
  • What Are Costs?
  • Direct and Indirect Costs
  • Direct Labor and Materials
  • Factory Burden
  • Tooling Costs
  • Product Engineering Costs
  • General and Administrative Costs
  • Sales and Marketing Cost
  • Costs and Product Volume
  • Fixed Costs
  • Variable Costs
  • Semi-Variable Costs
  • Step-Variable Costs
  • The Value of Learning
  • The Benefits of Cost Analysis
  • Summary
  • Define costs.
  • Distinguish between direct and indirect costs.
  • Define direct labor and direct materials.
  • Define factory burden.
  • Describe tooling costs.
  • Define product engineering costs.
  • Identify general and administrative costs.
  • Define sales and marketing costs.
  • List the types of costs in relation to product volumes.
  • Identify fixed costs.
  • Identify variable costs.
  • Identify semi-variable costs.
  • Define step-variable costs.
  • Describe the benefits learning can have on costs.
  • Describe the benefits of cost analysis.
Vocabulary Term


The process of spreading costs over time to reduce their impact.


A payment given to salespeople based on the amount of a product sold.


The amount of time, money, and labor spent to create a product or perform a service. Costs are typically expressed as a dollar amount.

cost estimate

Any attempt by a company to calculate the price of producing a product before making it.

direct cost

Any cost that can be specifically attributed to the creation of a final product. Direct costs include direct labor and direct material.

direct labor

The wages of the people that actually manufacture a specific product. Direct labor is a direct cost and includes only those people who are directly making the product.

direct material

The raw materials used in the creation of the final product. Direct material is a direct cost and includes any raw material that ends up as a part of the final product.

factory burden

The cost of running a factory. Factory burden involves indirect labor, indirect materials, and fixed or miscellaneous expenses.

fixed cost

Costs that do not change based on the product volume.

general and administrative cost

The cost of keeping a company running. General and administrative costs are indirect costs and exclude the costs incurred from factory processes central to the creation of a product.

indirect cost

Any cost that cannot be traced directly to the making of the final product, but is still necessary for the company to run.

indirect labor

The wages of anyone who does not directly contribute to manufacturing a product, but who are still needed to run the factory.

indirect material

Any material that is not part of the finished product or used to make the product. Cleaning products are an indirect material cost.

prime cost

Direct labor and direct materials combined into one cost.

product engineering cost

The cost in time and money to design, build, and test prototypes and final designs of a product. Product engineering cost is usually viewed as an indirect cost.

product volume

The number of products being made and sold.


An early model used to complete design evaluation.

selling cost

The total cost of marketing, advertising, and selling a product.

semi-variable cost

Costs that have a fixed component and a variable component. Both components should be factored into a cost analysis.

step-variable cost

Costs that remain fixed for certain amounts of products, but then jump drastically at other amounts. Step-variable costs are named for how they appear when graphed.

tooling cost

The cost to buy or build new tools or to revise older tools to make a specific product. This can be a direct or indirect cost, though most companies view it as indirect.

variable cost

Costs that change in relation to the product volume. Variable costs may follow a variety of patterns.