Example of Direct Materials

Example of Direct Materials

Raw materials that become an integral part of the product and that can be conveniently traced directly to it.

Example: A radio installed in an automobile









































Direct materials are raw materials that become an integral part of the finished product and whose costs can be conveniently traced to it. Examples include the aircraft engines on a Boeing 777, the Intel processing chip in a personal computer, the blank video cassette in a pre-recorded video, and a radio in an automobile.


Example of Direct Labor

Those labor costs that can be easily traced to individual units of product.

Example: Wages paid to automobile assembly workers









































Direct labor consists of that portion of labor cost that can be easily traced to a product. Direct labor is sometimes referred to as “touch labor,” since it consists of the costs of workers who “touch” the product as it is being made.


Example of Manufacturing Overhead

Manufacturing costs that cannot be easily traced directly to specific units produced.

Examples: Indirect materials and indirect labor


Wages paid to employees who are not directly involved in production work. Examples: maintenance workers, janitors, and security guards.


Materials used to support the production process. Examples: lubricants and cleaning supplies used in the automobile assembly plant.

Manufacturing overhead includes all manufacturing costs except direct materials and direct labor. These costs cannot be easily traced to specific units produced (also called indirect manufacturing cost, factory overhead, and factory burden).


Manufacturing overhead includes indirect materials that are part of the finished product, but that cannot be easily traced to it. It includes indirect labor costs that cannot be conveniently traced to the creation of products.


Other examples of manufacturing overhead include: maintenance and repairs on production equipment, heat and light, property taxes, depreciation and insurance on manufacturing facilities, etc.


Example of Nonmanufacturing Costs

Selling Costs

Costs necessary to secure the order and deliver the product.

Administrative Costs

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