An Investigation of the Extended Three-dimensional Transportation Model

The three major costs generally associated with the process of transforming raw materials into marketable merchandise area 1. Raw material costs 2. Production costs 3. Distribution costs Raw materials are the materials necessary to produce the finished product. They are the tangible substance from which the finished product is made. As such they may be purchased or shipped in from another plant. Raw material costs are the costs associated with obtaining these materials. The production cost is the cost associated with the conversion of the raw material into a finished product. It includes the cost of labor; the storage cost of raw materials, in-process and finished products, and the cost of energy or power. The cost of expendable tools and supplies, such as drill bits or dies that are directly related to the product may also be included. The fixed costs of a plant may or may not be included in this production cost. Usually they are added as a percentage to obtain a final factory cost, but are not computed for individual units.­­­­