Classifications of Manufacturing Costs
Manufacturing costs are usually grouped into three main categories: direct materials, direct labor, and manufacturing overhead. These costs are incurred to make a product.
Manufacturing Costs
Direct materials are an integral part of a finished product and their costs can be conveniently traced to it.
Indirect materials are generally small items of material such as glue and nails. They may be an integral part of a finished product but their costs can be traced to the product only at great cost or inconvenience.
Direct labor consists of labor costs that can be easily traced to particular products. Direct labor is also called “touch labor.”
Manufacturing Costs
Indirect labor consists of the labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products. These labor costs are incurred to support production, but the workers involved do not directly work on the product.
Manufacturing overhead includes all manufacturing costs except direct materials and direct labor.
Consequently, manufacturing overhead includes indirect materials and indirect labor as well as other manufacturing costs.
Learning Objective 1
Identify and give examples of each of the three basic manufacturing cost categories.
Learning objective number 1 is to identify and give examples of each of the three basic manufacturing cost categories.