The phrase production cost is used in management accounting. And use to describe the total cost of manufacturing items or providing services. It shows how the overall cost is broken down into its various components. And the components are material, labor, overheads, and so on. This will reveal the overall cost of the units produced as well as the cost per unit. It makes comparison easier. With Microsoft Excel, we can easily compute the production cost. In this article, we will demonstrate different ways to calculate the production cost in Excel.
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What Is Production Cost?
Most of the intended and unintended expenses firms incur when producing a good or rendering service are referred to as production costs. The expenses of manufacturing should immediately correspond to the amount of money. The company makes. Costs of materials and labor are common in the manufacturing sector. The technological labor involved in creating a particular service. And the material expenses associated with providing it to customers make up a particular service sector. The following is an expression for the production cost equation.
Production Cost = Direct Labor Cost + Direct Material Cost + Indirect Material Cost + Indirect Labor Cost + Other Overhead Cost
Manufacturing Overhead Cost = Indirect Material Cost + Indirect Labor Cost + Other Overhead Cost
Production Cost = Direct Labor Cost + Direct Material Cost + Overhead Costs on Manufacturing
3 Different Ways to Calculate Production Cost in Excel
For a variety of purposes, establishing the production costs per product and identifying the determinants of those expenses is critical. First and most importantly, if a corporation understands how much it takes to produce a product, this can set an income cost for that too.
To calculate production cost, we are going to use the following dataset. The dataset contains Direct Labor Cost, Direct Material Cost, Indirect Material Cost, Indirect Labor Cost, Other Overhead Cost. Now we need to calculate production cost.
1. Insert Simple Formula to Compute Production Cost
A formula in Excel Spreadsheet is an equation that works with data in a range of cells. Unless the outcome is incorrect, all equations return a result. We can use Excel formulas to execute operations like arithmetic, reduction, multiplying, and divisions. As the formula for production cost is simply just an addition, we can use a simple formula. For this let’s follow the steps down.
- Firstly, to simplify the formula we will find the manufacturing cost. So that we will select cell C11.
- Secondly, insert the simple formula for manufacturing cost.
- Then, press Enter.
- Further, to calculate the production cost, enter the following formula into cell C13.
- Now, hit the Enter button on your keyboard.
- Alternatively, you can just simply use the following formula.
- Finally, press Enter to complete the process and see the result on the formula bar.
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2. Get the Production Cost with SUM Function in Excel
The SUM function is used to sum values together. Whenever we want a cell to display the total of reference numbers in a specific variety of cells, use this formula. We can use the SUM function to calculate the production cost. As we already know the formula of production cost, let’s demonstrate the steps down.
- To begin with, we will calculate the manufacturing cost to simplify the formula. As a result, we’ll choose cell C11.
- Second, enter the simple production cost formula.
- Press the Enter key on your keyboard.
- In cell C13, insert the following formula to compute the manufacturing cost.
- Then, on your keyboard, press the Enter key.
- Instead of using the above formula, you can just use the formula below.
- Finally, hit Enter to finish the procedure and see the result in the formula bar.
3. Apply User Defined Function to Calculate Production Cost Using VBA
With Excel VBA, users can easily use the code which acts as excel menus from the ribbon. We are now creating a user-defined function using the Excel VBA to calculate the production cost. For this, we are using the dataset with direct labor, direct material and manufacturing cost.
Let’s demonstrate the steps below about how we can create the function and use the function in our spreadsheet.
- Firstly, go to the Developer tab from the ribbon.
- Secondly, from the Code category, click on Visual Basic to open the Visual Basic Editor. Or press Alt + F11 to open the Visual Basic Editor.
- Instead of doing this, you can just right-click on your worksheet and go to View Code. This will also take you to Visual Basic Editor.
- This will appear in the Visual Basic Editor where we write our codes to create a table from range.
- Thirdly, click on Module from the Insert drop-down menu bar.
- This will create a Module in your workbook.
- And, copy and paste the VBA code shown below.
Function ProductionCost(dl As Double, dm As Double, mc As Double) As Variant ProductionCost = (dl + dm + mc) End Function
- Next, save the code by pressing Ctrl + S.
- This will create a function named ProductionCost, and here, dl is Direct Labor Cost, dm is the Direct Material Cost, and mc is Overhead Costs on Manufacturing.
- Then back to the worksheet. Now, select the cell where we want the production cost result to appear. So, we select cell C9.
- After that, type the formula we have just created.
- Press Enter.
- And, we will get the result in cell C9. The user-defined formula will show in the formula bar.
The above methods will assist you to Calculate the Production Cost in Excel. Hope this will help you! Please let us know in the comment section if you have any questions, suggestions, or feedback. Or you can have a glance at our other articles in the ExcelDemy.com blog!
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