The document discusses the elements of manufacturing costs, which include direct materials, direct labor, and manufacturing overhead. Direct materials refer to the identifiable costs of materials used in production like paper for printing. Direct labor is the cost of employees' time spent directly working on a product, like an oil rig engineer's time. Manufacturing overhead represents all other production costs besides direct materials and labor, such as an accountant's time, equipment depreciation, and utilities.
1. Classification by Product:
The elements of manufacturing costs are direct material, direct labor and factory overhead.
Direct materials: Represents the cost of the materials that can be identified directly with the product at
reasonable cost. For example, cost of paper in newspaper printing, cost of
Direct labor: Represents the cost of the labor time spent on that product, for example cost of the time
spent by a petroleum engineer on an oil rig,
Manufacturing overhead: Represents all production costs except those for direct labor and direct
materials, for example the cost of an accountant's time in an organization, depreciation on equipment,
electricity, fuel,
1. Direct Cost
It is that element of cost in which we can include the cost of direct material and direct labor. If we
take its total, it will be prime cost.
a) Direct Material Cost
Direct material is that material which we find in finished product and easily measures its cost. For
example, for making furniture, woods are direct material and its cost will be the part of direct
cost.
b) Direct Labor Cost
Direct labor is used for producing the product. We pay wages for making product to laborers and
this cost will be the direct labor cost.
c) Direct expenses cost
Except direct material and direct labor, all direct expenses will be direct expenses cost.
2. Indirect Cost
a) indirect material cost
b) indirect labor cost
c) indirect expenses cost
c) Overheads
2. When we cannot charge an expense directly on the product, we can say it is indirect expense or
overhead. In overhead, we can include indirect material cost, indirect labor cost and other
following indirect expenses.
i) manufacturing overheads
ii) administrative overheads
iii) selling overheads
iv) research and development cost