How To Abbreviate Manufacturing – 5 Easy Ways (Updated Guide for 2022)

In this guide, we will show you everything you need to know about how to abbreviate manufacturing, so keep reading!

Below you can find out 5 different methods to abbreviate manufacturing,

Method 1 – Manufacturer Price Sheet: Material, Labor, Overhead & Profit

Hi guys the adjoins a–from driving success calm today were going to talk about pricing a product or an industrial. Finish good as a manufacturer now ideally what you want is you want to be able have an mrp system. Or an erp system and ability to track work orders material on location track cycle time variances analyze production throughput. From various work sales and workstations but you know the reality is is not every company has that tool so.

What ive done today is i basically put up a pricing sheet thats available on my website at drivers excess. Comm and later on in the video youll be able to click on the link that will allow you to. Use this exact same excel spreadsheet and what im going to do today is im just going to basically go. Over the four aspects of the expects l spreadsheet accounting for material labor overhead and then defining the price okay. So im going to go through each portion of the excel spreadsheet and when that link comes up later on.

And you click on it youll be able to input your material your quantity your cost and this panel right. Here will do the calculation for you as will this panel right here on the labor portion and theres some. Other areas where youve got to input some values but ill define that as we go forward so very quickly. Material what were doing in this case is were accounting for the material to make one unit in this case. The companies use the aluminum steel so that their silver plating the aluminum theyre using magnets epoxy and ferrite and.

This is the quantity for each unit manufactured one one one ten magnets one you know i say the epoxy. Its its basically a glue so this is one one little dab of glue i guess you could say and. Then fair rights here so cost per material one fifty to seventy two hundred ten dollars for each magnet $2.00. For the epoxy five dollars for the pharynx so very quickly the total is one times 150 150 to 71. Times 271 times 200 210 times ten to 100 so this these are the totals right here now what ive.

Done in this case what i do a lot of times is i actually apply a five percent indirect cost. To managing and taury now this is something that i learned several years ago and i was working at a. Company and when you think about the cost of inventory and ive done a couple of videos on this the. Cost to carry inventory is typically three percent of the inventory value on hand and accounts for financing cost of. Capital cost of obsolescence damage handling counting pill fridge theft all kinds of stuff going to that cost so you.

Can you can drop it down to three percent if you need me but you should charge a cost to. Manage these raw materials so in this case its five percent which is thirty six dollars and sixty cents so. Its basically five percent of this total so the 3660 is then added to the total of this and it. Gives you total material costs of 786 so fairly straightforward account for your material per unit manufacture okay now were. Going to move over to the labor portion now what i think is very important when you look at labor.

Is to account for your setup times in manufacturing a lot of companies tend to ignore their set of times. They really pay attention to their setup times for individual operations and individual workstations when its low volume because you. Know low volume youve got to account for your setup times because its a large portion of the overall cost. But in reality you should account for your setup times regardless of the volume yeah if you have a high. Volume of units manufacturer your set-up time is going to be spread out over that large volume but you should.

Still account for so the excel spreadsheet will actually do the calculation for you so ill run through basically the. The operations that are needed the set-up time and the run time are in minutes the cost per hour is. Allocated to each operation in terms of a labor rate for each operation so you got cutting machining c&c welding. And labeling set-up time ten ten ten ten and two run time 35 minutes 55 minutes 125 minutes for cnc. 45 45 again this is an example so theyre you know dont take these these at face value okay and.

Then ive got the cost per hour so 20 dollars in cutting $12 in cnc machining im sorry machining 17. Dollars in cnc 12 dollars in welding and seven $18 in labor now the way the example excel spreadsheet is. Going to calculate this portion of the formula its going to take your set-up time divided by 60 minutes multiplied. By your cost per hour in terms of a labor rate and its going to add that to the 35. Minutes on the run time divided by 60 minutes multiplied by the cost per hour so thats how it accounts.

For the set-up time of the run time in the overall total labor cost for this individual operation so itll. Do that for each one of the operations it will repeat the process and itll give you a total down. Here labor rate of 186 46 okay now you have to account for overhead and ive done a couple of. Videos in the past again ill just bring it up over ahead is your indirect expenses divided by your direct. Expenses if you want an example of direct expenses direct expenses our direct material and direct labor okay so basically.

Direct expenses are available to a particular customer or they are direct cost to a particular product that youre manufacturing. Indirect expenses relate to ancillary support costs in terms of administration sales accounting these types of things these are cost. That you cant directly link to a particular product or service or build it to a customer but theyre cost. You have to cover nonetheless okay so were down here at overhead and in this case the companys overhead is. 30% and what whats happening in this case is were going to add the labor here and the total im.

Sorry the material here and the total labor here and were going to multiply that by 30% then we add. 186 to 786 and multiply it by 30% we get 286 so ive written a little note here this is. Material plus labor times 30% so the subtotal is 1,000 241 that includes total labor here on some total material. Sorry total labor here of 186 and the overhead cost of 30% so its one two three gives you twelve. 41:58 in this particular case the company wants to make 25 percent profit so you take 12 41 a divided.

It by 0.75 it gives you a sell price of 1650 5.44 again you know the lake is probably just. Popped up above my head this lake will allow you to use this very same sample excel spreadsheet youll be. Able to input your quantities your cost your materials youll be able to account for the different operations you do. Make sure you account for set-up times make sure you have an accurate runtime itll allow you to account for. Your cost per hour it will figure out the material cost the 5% it will do it on its own.

Itll figure out the labor costs itll add up everything for you you have to input your your overhead rate. And then you have to determine what kind of profit you want to do so if its 30 percent would. Be 0.7 if its 40 percent it would be divided by 0.6 so this is a great tool for companies. That dont have that mrp system or erp system very simple very easy to use and once again its available. My website so check it out take care in johnson drive success com bye bye.

Method 2 – Manufacturing Calculations 2

Okay so now lets talk about production capacity production capacity is you can calculate for a facility a work cell. Piece of equipment all right and we abbreviate it pc all right so its the shifts per week times the. Hours per shift times the hourly production rate okay if you need to increase the production capacity over a short. Period of time you might increase the number of shifts work like add a saturday the facility is not normally.

Running then or you might increase the number of hours per shift okay so okay so lets look at this. Problem if a turret lathes section has six machines okay and they all can make the same park all right. And this section runs ten shifts per week and about eight hours per shift okay each machine makes 17 years. Per hour so how many can this section make it a week so lets just start the beginning and look. At what that is production capacity then is going to be weve got 10 shifts per week ok were going.

To multiply that number by eight hours per shift it look like that right so that tells us we have. How many hours we can work a week okay and then we can make 17 units per hour okay so. When i plug all that into my calculator i guess 1300 oops i didnt lock maybe i did not for. That right i get 1360 unix okay and when you look at that thing while that is okay the shifts. Cancel the hours cancel and i get units thats really per week okay thank you soon alright take that ok.

Trying to delete now im going to go back sorry ok so we answered that all right utilization so utilization. Is another way to look at oh you know what i didnt multiply that by was the six okay so. We have to take that number and multiply it by the six so i get 1360 and you that number. Seems small x 6 so each machine should make 1360 and so all together they can make 8160 okay sorry. Okay so back to where we were all right utilization thats your actual output versus your production capacity which means.

Youve got to calculate your production capacity usually in these machines okay so if a machine operates 80 hours per. Week and it makes 20 units per hour and one week last month it made a thousand parts and was. Eyes all the rest of the top so we wonder the production capacity of the machine and the utilization so. The production capacity of that machine is going to be equal to 80 hours per week um the units per. Hour and so thats going to be 1600 i think that ill just do the math to be sure so.

You can make 1600 units for week but that we can only made a thousand so its utilization which we. Abbreviate capital u is equal to one thousand units per week / 1,600 units per week that is 26 25. Or 60 2.5% okay so thats the utilization of that machine it was only being used about sixty-two percent of. The time all right manufacturing lead time is the total time required to make a part and that is the. Set-up time plus the time to make the parts plus the non operations on ok and the time to make.

The parts is the number of parts to make plus the cycle time for an operation ok so lets look. At what manufacturing lead time really looks like this okay so we said that the manufacturing lead tom was accommodation. Of a few things alright so this example says the part is made in batches of 100 units the batch. Has to go through 50 for free shins to complete to be completed the setup time is about three hours. For operation the average operation time is six minutes okay thats for each of the parts the non operation time.

Do the handling delays inspection is about seven hours okay and so we want to know how many days will. It take to complete the batch if the plant runs one eight hour shift per day okay so if were. Trying to figure out what it is okay the time to make it all right its going to be equal. To all right we said we got to do the setup time is five hours for operation there are five. Operations so its going to be five 13 thats ours all right the operation time is six minutes or thats.

Point one hours right there are five operations its got to go through five of them okay there are a. Hundred parts and each one of them has to be processed 4.1 hour right now the inspection times will be. Seven hours for operations there five operations so youll have 5 times 7 okay hours when i flood all this. Into my calculator i get get a grand total of 100 hours okay so weve got to change that in. Two days all right we say then the manufacturing lead tom will be equal to the 100 hours / 8.

Hours per day the manufacturing leave town for this piece is 12.5 base ok make sense perfect 12.5 a okay. Cost of manufacturing manufacturing costs fall into two major categories of a fixed costs and their constant at any output. Level variable costs they vary in proportion to the production output and you can find in your textbook good examples. Of what some different fixed costs and variable costs are think about that the variable cost would be the cost. Of raw materials okay the more you make the more you have to spend all raw materials okay like the.

Cost of the building is a fixed cost the building comes the same no matter how much you are making. Your money ok so the variable costs are multiplied by q your output level okay and you see i put. Some of the things in here buildings equipment taxes but the variable costs are things like labor materials utilities obviously. You make more you run the equipment more and so the power to run them possible right so this is. A chart of production quantity versus total cost alright so the total cost is there are two different curves here.

This one is a manual curve right the thick skulls are very low for manual operation that the variable costs. Are high because as you make more its basically the cost of people here having to pay more and more. People and that drives the price up okay however an automated process the total calls have is has a high. Fixed cost but the variable costs are lower so the slope looks more like this okay so its not particularly. Suited for low production quantities all right and these arm obviously when youre far over here and making a lot.

Of the product okay then you would say that youd be better off to be automated because the total cost. Is less now all right so down here in this region you would want to be manual here in this. Region of production you would want to be automated to keep your total costs to lowes all right so there. Are different ways to classify manufacturing costs direct labor materials overhead okay theres always factory overhead and corporate overheads you. Know these are things like sales and marketing there are things you cant necessarily do anything about but youre stuck.

With them right so youre going to have to pay them someone has to pay for them obviously the corporation. Is counting on you to make the product so you have cover the cost the cost of the goods you. Sell and then if we look at a typical manufacturing cost if this bar represents the selling price okay only. The manufacturing costs only accounts for about forty percent of that the raw materials only accounts for about fifty percent. Of that total manufacturing halls so thats only about twenty percent of the total selling price so you do the.

Parts the cost of your raw materials theyre up there about twenty percent the cause of the selling price back. Sounds different products use different marchment okay but this is like engineering search and development administration sales marketing cake that. You would consider like your corporate overhead these pieces would be part of your factory overhead but you can see. The profit margin here is relatively small alright well hope this helps you some in understanding manufacturing problems and typical. Manufacturing costs and that you feel like you understand those things a little better now thanks.

Method 3 – Applying Manufacturing Overhead

In this video were going to discuss how to apply manufacturing overhead so the first thing were going to need. To know is were going to need to know our predetermined rate and then once we have that predetermined rate. Well take that rate and well multiply it by the actual activity level and this is going to make a. Little bit more sense in the context of an example so lets just walk through this lets quickly go through.

And have a predetermined overhead rate and if you dont know what im talking about here you can watch the. Video we have on calculating a predetermined overhead rate and now well just say our predetermined rate weve got in. The numerator weve got budgeted overhead and well just say that thats three hundred thousand this is budgeted overhead for. The period and then well say that our cost driver in the denominator here is going to make machine hours. And well say that theres 50,000 budgeted machine hours for the period and so in the numerator weve got budgeted.

Overhead and the denominator weve got machine hours that have been budgeted these are estimates and this is going to. Yield us a rate of six dollars per machine hour so that means for every machine hour every actual machine. Hour as it comes up were going to apply six dollars of manufacturing overhead so lets take this rate now. Remember we just take the rate we multiply it by the actual activity level right now 50,000 machine hours is. The budget of the activity level now we use that to calculate the rate but now when we apply the.

Rate so well have our application here were going to need to multiply it by the actual activity level and. So lets say that the actual activity level lets say that there was actually 45,000 machine hours so actual machine. Hours is 45,000 okay so we just take that 45,000 the actual machine hours 45,000 machine hours and we multiply. It by our rate thats $6 right we just get that from right up here so that is going to. Give us 270,000 this is the amount of overhead that we need to apply were going to apply this overhead.

Now we need to make a journal entry to apply the overhead what journal entry to make well we debit. An account called work-in-process which im just going to abbreviate whip work in process thats an asset account now were. Crediting manufacturing overhead so this again this is the application this is not the actual overhead were applying it based. On our predetermined rate were looking at the actual number of machine hours that are driving that this rate or. That weve decided are driving the rate thats our cost drivers machine hours and were applying based on this rate.

And our application is two hundred and seventy thousand so well have the debit well whip would be 270 and. Then the credit to manufacturing overhead would be two hundred and seventy thousand so when weve made this journal entry. Weve applied two hundred and seventy thousand dollars of manufacturing overhead now if you want to talk about okay well. What if we made a mistake and we actually we we applied more overhead than what we thought or what. What should have been what if at the end of the year we find out you know what we actually.

Applied too much overhead or too little well theres a way a really easy way to deal with that theres. Actually a couple of ways and ill just briefly highlight one and well have a video on the other so. You can lets just say that the actual overhead costs for the period are two hundred and sixty thousand right. This is just a lilla straight the point here so we applied two hundred and seventy but the actual is. Two hundred and sixty thousand so we can think about this in terms of a t-account so lets have a.

Little tea account here from manufacturing overhead so weve got credit here for two hundred and seventy thousand right that. Was our application of overhead and this two hundred and sixty could have been utilities whatever the the manufa overhead. Expenses were during the period were saying they added up to 260,000 okay now you see that hey weve got. 10,000 more here on the right what does that mean well in this case we applied 10,000 more than what. Our actual overhead was so now we need to to kind of rectify this so what we do is we.

Make an entry over here for ten thousand that will zero things out so now this ten thousand that is. Basically were correcting for the fact that we applied too much overhead we applied an extra ten thousand and now. We can just make another journal entry at the end of the period to account for that to say heres. Manufacturing overhead moh will debit that for ten thousand you say well why a debit well thats what we got. Here in our t account we need to add ten thousand to the debit side and then well credit cost.

Of goods sold for ten thousand so were basically burying this difference in cost of goods sold theres actually another. Way of doing this and well have another video of discussing.

Method 4 – 3 Types Of Manufacturing Costs (Direct Materials, Direct Labor, Manufacturing Overhead)

So when we talk about managerial accounting or cost accounting something thats going to come up pretty frequently is this. Notion of manufacturing costs so when we think about manufacturing costs or theyre very important because theyre actually going to. Be used in in calculating something called cost of goods sold and so so its important that we have a. Fundamental understanding of what manufacturing costs are so when we think about manufacturing costs ill just abbreviate here manufacturing costs.

Can be split into three main items so weve got direct materials direct labor and manufacturing overhead and im sure. Youve heard the term overhead before you might not have an understanding of what it is and were going to. Talk about that in the video right now so lets use an example lets take a firm and lets say. That your firm lets say that you you manufacture automobiles so you make cars thats what your firm does you. Make cars okay so were just going to use an example as we walk through direct materials direct labor and.

Overhead and kind of tie it back in to this idea of making cars so you can understand and its. A little bit less abstract so lets think about direct materials now if we want to define direct materials what. Were really doing is this thing on a broad level its any kind of material that goes into the final. Product so when we can think about our example for the cars so an example is going to be steel. Right steel is going to go into the car right the car is going to be made of steel we.

Might have something like you know rubber to make the tires we have these different things that you know maybe. You have plastic to make a windshield wiper on the car you have all these different things theyre theyre direct. Materials and they directly go into the final product which in this case is the car so they go into. The car if they somehow if its somehow some type of material that actually is put into the car to. Build the car then its a direct material now weve got the second component now which is a direct labor.

And when we think about direct labor its kind of similar a little more abstract but its its labor that. Can be traced to that car to individual units of production which in this case is the car when we. Talk about tracing what were talking about is we can say okay look we can actually tie a specific person. So some labor or some employee at the firm we can tie them to this car so we just we. Just had a car come off the assembly line and we could say that this person helped assemble that car.

They put the door on they did something that they actually we can trace it and we can say okay. This labor from this person went into that car and thats kind of this idea of tracing now you might. Say well in what case could you not trace something back to the car well if we think about someone. Like for example a janitor so a janitor we cant necessarily tie the work the janitor did sweeping the floor. To an individual car we cant really make that leap its not traceable so thats not going to be direct.

Labor so direct labor would be more like the person whos doing the assembling and and kind of this the. Idea the janitor not being able to trace the cost is going to lead us in to basically the idea. Of manufacturing overhead and manufacturing overhead is just generically everything thats not direct materials or direct labor is overhead so. Ill just give some some kind of specific examples so you understand a little bit better so when we think. About the indirect labor weve got of course i just i just gave the example of the janitor indirect materials.

Might be a little bit more difficult to understand maybe theres maybe theres some glue or something that was somehow. Put used to put together something that in turn then was put into the car or something like its just. Is some kind of thing that doesnt really its not really so like steel to be used for the car. We just think about something like i said like theyre using a glue gun in the factory to put together. Lets say your rear view mirror so lets say theres glue to put together glue to put together a component.

So i guess in a way you could technically say that maybe the glue is a input to the car. But not really really its just something thats is kind of used somewhere along the line is this tiny thing. That is kind of indirectly used to build the car but its not real you wouldnt see that car is. Made of glue at least at least i hope youre not driving a vehicle that shoddy but when we think. About other kind of costs that really cant be traced we think about things like utility cost maybe depreciation expense.

Maintenance and repair for a machine that was used to assemble the vehicle things even maybe like property taxes but. We cant really trace property taxes directly to a single vehicle that comes off off the assembly line so so. Really when we think about our three types of manufacturing clause its really this idea of tracing or being able. To figure out if these things actually go into the car or some way measure and figure that they go. Into the car is really what what is going to be the determining factor of whether something is overhead or.

Whether its not so weve got direct materials just material the steel to build a car weve got the the. Labor the assembly of the car the person who put the car together and then really weve got everything else. Which is our overhead.

Method 5 – Calculating Manufacturing Cost

Hi i want to go over one of the quiz questions that are in the chapter 2 section the question. Actually refers to calculating a missing value when youre looking at manufacturing costs total manufacturing costs couple things that you. Have to understand the terminology and ive got abbreviations in here diem for direct materials direct labor dl moh for. Manufacturing overhead the three of those combined equals your total manufacturing costs so understanding that prime cost is dm direct.

Materials plus your direct labor portion is important knowing that you can take your raw materials direct materials and add. Later and overhead to convert materials parts into a finished product that is called conversion cost direct labor plus manufacturing. Overhead are the costs associated with converting direct materials into a finished product in the particular example that i am. Going over right now the direct labor cost was given to us so ive kind of put direct labor here. At 20,000 405 okay they give us the information that it represents 55 percent of prime if it represents 55.

Percent of prime then 45 percent is going to be the direct material because again prime is a hundred percent. 45 if 55 is given as labor then to get to 100 material must be 45 percent i dont really. Need that piece to do the computations what i need to understand okay is that with the information given i. Can set up a ratio so thats my fir.

Conclusion – How To Abbreviate Manufacturing

The purpose of this post is to assist people who wish to learn more about the following – manufacturing operations management – process and production intelligence demo, flow of manufacturing costs, manufacturing overhead, how to prepare a cost of goods manufactured statement (cost accounting tutorial #24), abb robotics webinar | visual transformation for manufacturing, it’s time to rethink the rules of manufacturing, manufacturing cost flows – management accounting, engineering drawings: how to make prints a machinist will love, circular manufacturing: the rules of the circle, manufacturing inventory flow, manufacturing overhead budget, manufacturing journal entries, cost of goods manufactured (cogm), predetermined overhead rate (what it is and how to calculate it), cost of goods manufactured schedule.

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