The ladder / Level 3 · Manufacturer
Business math for manufacturers
Unit costing, fixed and variable costs, absorption and marginal costing, capacity utilisation, yield and first pass yield, machine hour rate, depreciation and payback, pricing to an OEM, make-or-buy and operating leverage.
In a factory, the price an OEM will pay is often fixed by the market; what you control is cost per unit. That depends on how full the plant is, how much is scrapped, what a machine hour really costs, and whether a part is cheaper to make or to buy. These pages cover the standard costing arithmetic, using textbook methods.
Each topic has a plain-words explanation, the standard formulas with their terms, worked examples at three levels (Basic Intermediate Advanced), and a quiz that tells you instantly whether you were right and why.
Every number on these pages is calculated by a script and checked against the page before it is published.
- Unit costing: absorption and marginalMaterial, labour and overheads; fixed and variable costs and the high-low method; overhead absorption rates; why absorption and marginal costing give different profits.6 worked examples · 12 quiz questions
- Capacity utilisation and yieldCost per unit at different volumes, extra orders using spare capacity, yield, rejection rate, first pass yield and rolled throughput yield.6 worked examples · 12 quiz questions
- Machine hour rate, depreciation and paybackWhat a machine hour costs, straight line and written down value depreciation (textbook methods), and machine payback.6 worked examples · 12 quiz questions
- Pricing to an OEM, make-or-buy and operating leverageCost-plus quotes, price-downs and annual price reductions, the cost cut needed to hold margin, relevant costs for make-or-buy, and degree of operating leverage.9 worked examples · 18 quiz questions
- Mixed quizQuestions across all topics, basic to advanced.12 quiz questions
Related topics on other levels. Trader topics that carry over: break-even and contribution, margin versus markup (cost-plus quotes), reorder level and weighted average cost (raw material), and unit conversions. Next level up: new-product business math (NPV, royalties, unit economics).
How numbers are rounded on these pages. Calculations are done at full precision and rounded only at the end, half up. Rupee amounts are rounded to the nearest rupee unless shown with paise, in which case to the nearest paisa. Percentages are shown to two decimal places; payback periods in years, and ratios such as degree of operating leverage, to two decimal places. Quantities you must start, buy or sell to reach a target are rounded up to the next whole unit or kg. Depreciation uses textbook straight line and written down value methods, not the rates or lives set by tax or company law. All examples and quiz questions are Hypothetical: they show the method, not real prices or rates.