Indirect costs are costs that are used in a manufacturing process or service but cannot be easily traceable to the end product or service.
Some indirect costs can include:
- Maintenance and repairs
- Supervisor's salary/wages
- Manager's salary/wages
- Utility costs
- ICT costs
Factory overhead are a type of indirect cost that includes all the costs of indirect labour and indirect mateirals used in the manufacture of a product.
Factory overhead = Indirect Materials + Indirect Labour
Direct costs are costs that are used in a manufacturing process or service and can easily be traceable to the end product or service.
Some direct costs can include either direct materials or direct labour.
Direct materials are only materials that are easily traceable to the manufacture of a product. E.g. Wood used in a table.
Direct labour is the cost directly associated with the manufacture of a product. E.g. Production line worker's wages.