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Manufacturers have inventory, also known as the products in its possession as opposed to the products shipped or sold. The cost of each unit is primarily determined by the materials used to create the units. The cost is also influenced by other costs for labor and overhead. Labor costs are divided into direct and indirect labor. Direct labor includes the salaries and wages paid to workers who are directly involved in the manufacturing process. Indirect labor, on the other hand, is the cost to pay workers in functions like marketing, accounting, human resource management, customer relationship management, and others. Indirect labor is usually classified under overhead costs. Overhead costs are those that cannot be classified as raw material, inventory, and direct labor costs. Like labor costs, overhead costs have two classifications: manufacturing and nonmanufacturing. The indirect labor cost mentioned above is an example of a nonmanufacturing overhead cost. Manufacturing overhead costs are directly related to the manufacturing process itself. This includes repair and maintenance, depreciation and electricity of machines, factory personnel that don’t work directly on the goods, and factory supplies. Indirect overhead costs encompass all the other costs that cannot be classified as raw materials, inventory, direct labor, and manufacturing overhead costs. Costs in general can be classified into fixed and variable costs. Variable costs increase with the number of units produced. An example of a variable cost is the cost of raw materials used to create the final product. Fixed costs don’t change regardless of the number of units manufactured. Salaries, wages, depreciation, and electricity are examples of fixed costs. The company profits from the prices of the goods and the lowered costs per unit when the company sells more goods. This is because the company increases its ability to cover its fixed costs with more goods sold, even though variable costs increase. A manufacturer who wishes to keep track of all of these costs and their classifications can benefit from manufacturing software solutions. Manufacturing software solutions help keep track of the movement of the inventory, as well as the other costs incurred by the manufacturer, whether directly or indirectly related to inventory. This is because these solutions can be integrated with the databases from other business functions of the manufacturing company. That way, even the most miniscule movement of resources throughout the company can be tracked and evaluated. Manufacturing inventory software is an example of these software solutions. These solutions generally help the company detect any inefficiencies in its business processes, design its system accordingly, train personnel to use these systems easily, and, ultimately, grow the company. You can download the document at packerthomas.com/services/links_IT/HowtoChooseaManufacturingSystem.pdf to learn more about choosing the manufacturing software for your company.
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