Analyzing Common

Costs in Manufacturing
Manufacturing and
Service Industries
This presentation explores the key cost drivers in both manufacturing and
service businesses. We'll cover the major expense categories that impact
profitability and competitiveness, from direct labor to overhead and utility
costs.
 Direct Labor Costs
Manufacturing
Direct labor is a major cost in manufacturing,
including wages for production staff, assembly
line workers, and machine operators.

Services

In service industries, direct labor includes the

personnel providing the core service, such as
nurses, consultants, or customer service agents.
Material Costs
1 Manufacturing
Raw materials, components, and
supplies are a significant expense for
manufacturers. Careful sourcing and
inventory management are critical.
3 Reducing Waste
Both industries benefit from minimizing waste and scrap, which can dramatically
lower material expenditures.
2 Services
While service firms have fewer
material costs, expenses for office
supplies, marketing materials, and
other consumables can still impact
margins.
Overhead Costs
Facilities Equipment
Rent, utilities, and maintenance for Depreciation, leasing, and repairs for
production facilities or office space are machinery, computers, and other assets
key overhead costs. add to overhead.

Administration
Managerial salaries, legal fees, and other administrative expenses contribute to overhead
burden.
 Indirect Labor Costs
Manufacturing
Indirect labor includes production managers,
quality inspectors, and other support staff not
directly involved in making the product.

Services

In services, indirect labor covers administrative

staff, HR, IT, and other functions that enable
service delivery.
Energy and Utility Costs
Manufacturing
Energy-intensive processes like
smelting, machining, and chemical
production drive high utility costs for
manufacturers.

Services
Service firms have lower utility needs,
but still face expenses for electricity,
internet, water, and waste disposal.
Maintenance and Repair Costs
Preventive Maintenance
Regularly scheduled servicing can extend the lifespan of equipment and
reduce unplanned downtime.

Repair Costs
Unexpected equipment failures lead to repair bills and lost production, so
minimizing these costs is key.

Facility Upkeep
Maintaining buildings, utilities, and other infrastructure is an ongoing expense
for both manufacturers and service providers.
Key Takeaways
Cost Control
Carefully managing direct,
indirect, and overhead costs is
critical for profitability in both
manufacturing and services.
Process Efficiency
Improving operational
efficiency through automation,
preventive maintenance, and
waste reduction can drive
down costs.
Resource Management
Optimizing material sourcing,
inventory, and energy usage
are key levers for reducing
expenditures.