Manufacturing Costs and Time Study

Manufacturing Costs and Time Study

​Manufacturing

​The production department of a business assembles or manufactures, and packages the products sold by the business. The cost of manufacturing an item depends, in part, on the direct material cost and the direct labor cost. The direct material cost is the cost of the goods that are used to produce the item. The direct labor cost includes the wages paid to the employees who make the item. the prime cost is the total of the direct material cost and the direct labor cost. The prime cost is frequently expressed on a per-unit basis. The formula is:

​Prime Cost per Item = Direct Material Cost per Item + Direct Labor Cost per item

​Example 1: Cost of Manufacturing

​Electric Supply produces aluminum circuit housings. The machine operator stamps 20 housings from each strip of aluminum. Each strip costs $1.80. The operator can stamp 720 housings per hour. The direct labor charge is $19.50 per hour. To the nearest tenth of a cent, what is the prime cost of manufacturing the circuit housing?

​Step 1: Find the direct material cost per item.

​$1.80/20 = $0.09 direct material cost per item

​Step 2: Find the direct labor cost per item.

​$19.50/720 = $0.02708 = $0.027 direct labor cost per item

​Step 3: Find the prime cost per item.

​Direct Material Cost per Item + Direct Labor Cost per Item

​$0.09 + $0.027 = $0.117 cost per housing

​Time Study

​Your business may conduct a time study to determine how long a particular job should take. A time study involves watching a typical employee complete a job, recording, the time required for each task, and calculating the average time for each task. You can use the averages to determine how many units a worker can produce in a fixed period of time.

​Actual Time Worked/Average Time Required per Unit = Number of Units

​Example 2

​General Lamps did a time study of Beth's job as a carton packer. Her times were recorded. The averages were calculated. If Beth gets a 10-minute break each hour, how many cartons can she fill per hour?

​Example 2 Cont.

​Step 1: Find the average time required per unit.

​4.3 + 12.6 + 13.4 + 4.7 + 5.5 = 40.5 seconds

​Step 2: Find the actual time worked per hour.

​(60-10) minutes x 60 seconds = 3,000 seconds

​Step 3: Find the number of units per hour.

​Actual Time Worked/Average Time Required per Unit

​3,000 seconds/40.5 seconds per unit = 74.07 = 74 units per hour