Cost Analysis for Pump Housing Production: A Detailed Report

This assignment provides a detailed cost analysis of pump housing production. The analysis begins by calculating the direct labor cost, which is determined by multiplying the hourly rate by the total assembly hours, resulting in a total direct labor cost of AED 1,000. The assignment then calculates factory overhead costs, which are 250% of the direct labor costs, totaling AED 2,500. Subsequently, corporate overhead costs are calculated, representing 600% of the direct labor costs, amounting to AED 6,000. The total cost of the product is then calculated by summing the factory costs (direct labor plus factory overhead) and the corporate overhead costs, leading to a final product cost of AED 9,000. The assignment highlights the importance of considering all costs, including labor, factory overhead, and corporate overhead, to determine the overall cost of production. References are provided to support the analysis.

Question 2: Cost of the product 1
Name:
Course:
Professor:
Date:

Question 2: Cost of the product 2
Question 2: Cost of the product
The case study involves the production of pump housing. The production which is required is of
1000 units for a client at minimum cost. The cost of the product arrives from different costs
which are achieved during the production process. From the case study, the cost of materials and
tooling are supplied by the client and therefore this reduces the cost of production.
Direct labor cost is of portion which composes the overall cost of the product. From the case
study, the labor cost is charged for an hour basis (Production Costs, 2015). Since the whole part
will take 100 hours for assembling, at a rate of EAD 10/hr, the total labor cost will be;
= 100 hr x AED 10/hr = AED 1,000.
In addition, the process of production constitutes factory overhead costs as well. The factory
overhead is the costs which are incurred during the manufacturing process. This cost excludes
the direct labor costs and the cost of the materials (Films Media Group & TV Choice
Productions, 2017). From the case study, the factory overhead cost stands at a rate of 250% of
the direct labor costs. Therefore the total factory overhead cost incurred in the manufacturing of
this item is;
= AED 1,000 x 250/100 = AED 2,500.
Lastly, another cost which is incurred in the manufacturing process in this case study is the
corporate overhead cost. These are the costs which are related to the running of the organization
to ensure that it will be able to produce the products (Antràs, 2016). From the case study, the rate
of the corporate cost stands at 600% of the direct labor cost. The total corporate cost will be;
= AED 1,000 x 600/100 = AED 6,000.

Question 2: Cost of the product 3
The total cost of the product is achieved as follows;
The total direct labor cost, in this case involves the cost of working on the clients order which he
or she has provided the materials. Therefore, this will stand at AED 1,000. Total factory costs
will be able to include the direct labor costs plus the factor overhead costs. This will be AED
1,000 + AED 2,500 = AED 3,500. The total cost of the product will involve the total factory
costs incurred from the other expenses which the company is able to incur in order to ensure
proper manufacturing process. These costs, also known as the corporate overhead costs may
include costs such as administrative expenses and even insurance (Hufford, 2016). In this case
study, the cost of the product will be the total factory cost plus the corporate overhead cost.
Total cost = factory cost + corporate overhead cost
Total cost = AED 3,500 + AED 6,000
= AED 9,000.
Lastly, it has to be noted that the cost of the product is the cost which is incurred by the company
for the production of the item. This will be different from the cost which the buyer will have to
but since the company will include its profit to the total cost of the product.

Question 2: Cost of the product 4
References
Antràs, P. (2016). Global production: Firms, contracts, and trade structure. Princeton: Princeton
University Press.
Films Media Group,, & TV Choice Productions. (2017). Costs and Profit. (Films on Demand.)
Hufford, L. (2016). Navigating the talent shift: How to build on-demand teams that drive
innovation, control costs, and get results.
Production Costs. (January 01, 2015). 323-352.