Technical manufacturing cost (TMC) is an essential financial indicator for manufacturing companies to determine product production costs. In this article, we will explain what technical manufacturing cost is, what elements make it up, how to calculate it, and how to use ERP systems to calculate manufacturing costs accurately.
What is TMC's technical manufacturing cost?
Technical manufacturing cost (TMC) is the sum of a company’s costs in producing a specific product. It includes the cost of materials, labor, and other direct and indirect costs associated with the production process. The technical cost of production is necessary for setting sales prices, budget planning, and assessing the profitability of production.
Technical manufacturing cost - what does it consist of?
Technical manufacturing costs consist of several essential elements that must be considered to determine production costs accurately. These are:
- Direct material costs - include all raw materials and materials directly used in producing a product. Examples include steel for machinery, wood for furniture, or ingredients for food production.
- Direct labor costs - refer to the wages of workers directly involved in the production process, such as machine operators, assemblers, or production line workers.
- Indirect production costs - include costs that cannot be directly attributed to a specific product but are necessary for its production. Examples include machine maintenance, electricity, equipment depreciation, and production management costs.
- Auxiliary costs - may include other expenses necessary for the production process, such as internal transportation, warehousing, or quality control.
How to calculate the technical cost of production – formula
The calculation of technical manufacturing cost requires including all the above components. The formula for calculating the technical manufacturing cost is as follows:
TMC = Costs of direct materials + Costs of direct labor + Indirect production costs + Additional costs.
Example of calculation:
If a company incurs the following costs:
- Direct material costs: PLN 100,000
- Direct labor costs: PLN 50,000
- Indirect production costs: PLN 30,000
- Additional costs: PLN 20,000
Then, the technical cost of production (TMC) is:
TMC = PLN 100,000 + PLN 50,000 + PLN 30,000 + PLN 20,000 = PLN 200,000.
TMC - How do we calculate production costs with the help of an ERP system?
ERP (Enterprise Resource Planning) systems are indispensable for managing production costs. They integrate all aspects of a company’s operations, enabling accurate and efficient monitoring and calculation of production costs. Here’s how an ERP system can help calculate the technical cost of manufacturing:
- Automation of data collection - The ERP system automatically collects data on material consumption, labor time, and other production-related costs. This eliminates the need for manual data entry and reduces the risk of errors.
- Accurate cost allocation - ERP allows you to allocate costs to individual products, allowing you to more accurately determine what costs are associated with the production of a particular item.
- Real-time monitoring - ERP systems allow real-time monitoring of production costs. The company can control expenses in real-time and make the necessary adjustments to optimize production.
- Reporting and analysis - The ERP system generates detailed reports and studies on production costs. This allows users to identify areas where costs can be reduced and make more informed business decisions.
- Integration with other modules - The ERP system integrates with different modules, such as warehouse management, sales, and accounting. This ensures all data is available in one place, making management and business planning easier.
In summary, the technical cost of production (TMC) is a crucial indicator for manufacturing companies. It includes the cost of materials, labor, and other costs associated with the production process. Calculating TMC is essential for product pricing, budget planning, and assessing production profitability. ERP systems significantly facilitate production costing by providing accuracy, automation, and real-time monitoring of costs. They enable companies to manage their resources more efficiently and increase business profitability.
