We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is a Factory Cost?

Daniel Liden
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

"Factory cost" is a term used to refer to the total cost of producing a given product at the point of production, such as at a factory. The total factory cost of a product is composed of the labor and materials that actually go into the final product as well as the required overhead costs. Overhead costs are necessary expenses that do not actually contribute directly to the final product, such as electricity necessary to operate the factory lights and clerical labor to manage logistical concerns in the factory. The cost of producing a given product at the point of production can change over time based on the cost of labor, the availability of raw materials, and a wide range of other factors.

The cost of raw materials necessary for producing a given product is among the most important and substantial contributors to factory cost. Without the necessary raw materials, the product itself simply cannot be produced. As such, the cost of raw materials can drastically affect factory cost, especially if the cost of such materials tends to change over time. Labor is also a highly important component of the cost of production, though the costs of labor are less likely to change dramatically or unexpectedly, and it is generally possible to maintain production with a reduced labor force when necessary.

Many of the costs associated with operating a factory do not directly contribute to the production of a product and are, therefore, considered to be "overhead costs" or "factory burden costs." Overhead factory cost includes all expenses except for the materials and labor that directly contribute to the production of the raw materials. Indirect labor, such as quality assurance and factory maintenance staff, for example, are considered to be overhead cost. Overhead factory cost also includes such costs as insurance paid on equipment and property; cleaning expenses; and in some cases, benefits such as insurance for employees.

It is possible for factory cost to change over time, which can threaten the viability of continued production if costs rise sharply. Most costs tend to increase gradually over time as a result of inflation and other economic factors, and it is usually necessary to increase product prices accordingly. In some cases, however, the costs of various components of factory cost can be quite volatile and may increase or decrease sharply, or may change seasonally. This is most common with raw materials, and it can result from resource scarcity, changing government regulations, or a range of other factors.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Link to Sources
Daniel Liden
By Daniel Liden
Daniel Liden, a talented writer with a passion for cutting-edge topics and data analysis, brings a unique perspective to his work. With a diverse academic background, he crafts compelling content on complex subjects, showcasing his ability to effectively communicate intricate ideas. He is skilled at understanding and connecting with target audiences, making him a valuable contributor.
Discussion Comments
Daniel Liden
Daniel Liden
Daniel Liden, a talented writer with a passion for cutting-edge topics and data analysis, brings a unique perspective to...
Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.