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Three building blocks your manufacturing costs budget must include

by , 01 September 2014
The only way you can really control your company's manufacturing costs is with a sound manufacturing costs budget. This budget will help you monitor your expenses and prioritise them correctly.

But how can you ensure your budget will work properly and help you achieve your manufacturing goals?

Well the best way is to ensure it has all the right building blocks at its foundation. Building blocks like these three...

 

Here are the three building blocks your manufacturing costs budget must have

 
Manufacturing cost # 1: Direct material
Direct material becomes part of the finished product. It's the raw material you use in your manufacturing processes. You must account for these where possible. 
 
You must decide if it's worth the effort to keep track of them on a per product basis. Sometimes they seem such insignificant components that they're not worth recording then it's up to you where the expenses is even worth budgeting for.
 
Keep reading to find out about the next two...
 
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Manufacturing cost # 2: Direct labour
Direct labour includes people who are directly involved in making the product. They contribute the labour that becomes part of the finished product. If it's possible to keep track of their labour on a per product basis, a Manufacturing overhead budget will make it even easier to track.
 
Manufacturing cost # 3: Overhead costs
Overhead costs are the indirect labour and raw material costs you can't directly match to a job, process or operation or aren't worth the effort to track per product.
 
These costs are either fixed or variable depending on the nature of the business.
 
Just remember manufacturing overhead costs aren't necessarily the same as overhead costs! 
 
So there you have it. Ensure your manufacturing costs budget has these three building blocks and it will be effective.
 

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