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
Factory overhead are 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:
Direct labour costs - e.g. manufacturing workers' wages
Shipping and distribution costs
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.
Test Your Knowledge!
Manufacturing Costs Quiz
Answer each of the following costs as a 'Direct Material', 'Direct Labour' or 'Factory Overhead'.