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.

**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.Â 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 +Â Indirect Material Cost + Indirect Labor Cost + Other Overhead Cost**

Or,

Here,

**Manufacturing Overhead Cost = Indirect Material Cost + Indirect Labor Cost + Other Overhead Cost**

So,

**Production Cost = Direct Labor Cost + Direct Material Cost + Overhead Costs on Manufacturing**

**How to Calculate Production Cost in Excel: 3 Different Ways**

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*, and *Other Overhead Costs*. 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 letâ€™s follow the steps down.

**STEPS:**

- Firstly, to simplify the formula we will find the manufacturing cost. So that we will select cell
**C11**. - Secondly, insert a simple formula for manufacturing cost.

`=C7+C8+C9`

- Then, press
**Enter**.

- Further, to calculate the production cost, enter the following formula into cell
**C13**.

`=C5+C6+C11`

- Now, hit the
**Enter**button on your keyboard.

- Alternatively, you can just simply use the following formula.

`=C5+C6+C7+C8+C9`

- Finally, press
**Enter**to complete the process and see the result on the formula bar.

**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, letâ€™s demonstrate the steps down.

**STEPS:**

- 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.

`=SUM(C7,C8,C9)`

- Press the
**Enter**key on your keyboard.

- In cell
**C13**, insert the following formula to compute the manufacturing cost.

`=SUM(C5,C6,C11)`

- Then, on your keyboard, press the
**Enter**key.

- Instead of using the above formula, you can just use the formula below.

`=SUM(C5,C6,C7,C8,C9)`

- 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.

Letâ€™s demonstrate the steps below about how we can create the function and use the function in our spreadsheet.

**STEPS:**

- 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.

**VBA Code:**

```
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 the*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.

`=ProductionCost(C5,C6,C7)`

- Press
**Enter**. - And, we will get the result in cell
**C9**. The user-defined formula will show in the formula bar.

**Download Practice Workbook**

You can download the workbook and practice with them.

**Conclusion**

The above methods will help 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.

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