A manufacturing company must record and analyze many different costs from many different perspectives to truly understand what an individual product costs them. Using the text information, in your own words, describe the many classifications for costs. How are they recorded in the accounting system and reports, and what does each specifically tell the user? How is this different from the information recorded in a retail organization?

Direct material: Raw materials or components used directly in product production. If Company A makes toys, plastic would be a direct material expense.

Direct labor: Wages, benefits, and insurance provided to employees directly engaged in manufacturing and creating things, such as assembly line workers or machine operators.

Manufacturing overhead expenses include direct factory-related expenditures, such as the cost of equipment and operation. Indirect expenses include:

This is further explained below

What are Indirect materials?

Indirect materials are employed in manufacturing but not immediately traceable to the product. Indirect materials include glue, oil, tape, and cleaning products.

Indirect labor is not directly engaged in product manufacturing. Factory security guards, managers, and QA personnel are examples. They are indirect labor expenses.

Cost Example

A makes tables. Costs may include:
Tables' wood cost.
Security guards' wages and benefits are considered indirect labor.
Manufacturing overhead: utility costs.

Product, manufacturer, and industry vary. Mass-produced goods have lower margins than those made in smaller quantities. More production, less margin. Carbonated drink bottles have a lower margin than plasma TVs.