29/11/2020
Types of Product Costs
Direct labor
Direct labor costs are the costs of labor that can be directly traced to the production of a product. The cost of wages for production workers is a direct labor cost for a manufacturing company.
Direct material
Direct materials are the raw materials that are directly used in producing the finished product. The costs included in the direct material cost are all of the costs associated with acquiring the raw material: the raw material itself, shipping-in cost, and insurance, among others. Common examples of direct materials are plastic and components.
Manufacturing overhead
Manufacturing overhead costs are the company’s costs related to the production process that are not direct material or direct labor but are necessary costs of production. Examples are indirect labor, indirect materials, rework costs, electricity and other utilities, depreciation of plant equipment, and factory rent.
Indirect labor
Indirect labor is labor that is part of the overall production process but does not come into direct contact with the product. A common example is labor cost for employees of the manufacturing equipment maintenance department.
Indirect labor is a manufacturing overhead cost.
Indirect material
Similar to indirect labor, indirect materials are materials that are not the main components of the finished goods. Examples are glue, screws, nails, and other materials such as machine oils, lubricants, and miscellaneous supplies that may not even be physically incorporated into the finished good.
Indirect materials are a manufacturing overhead cost.
