Lakhasly

The Elements of Cost are the three types of product costs (labor, materials and overhead) and period costs.Indirect materials either cannot be traced to products or it is not cost effective to do so. For example, a company producing artisan crafts may consider wood to be a direct material, as the company can easily quantify how much wood goes into each craft.Direct materials are the quantifiable and traceable costs of materials used in production.Overhead
Overhead costs are related to production, but are not classified as direct labor or direct materials.Materials
Materials costs are the tangible goods used in producing the product.This includes all indirect labor and materials costs, as well as any other untraceable costs.In that case, these items would be considered indirect materials.For example, wages for materials handlers and line workers are usually considered to be direct labor costs.Indirect labor costs are any other wages and salaries related to production, but are not traceable back to units of product.Common overhead costs include depreciation on factory equipment, manufacturing rents, supplies costs, insurance costs and licensing fees.However, factory maintenance workers, plant supervisors and quality control engineers would be considered indirect labor.In these cases, small-business owners should be careful to recognize that just because overhead costs are not easily traceable to products doesn't mean that effective cost management is any less important.Labor
Wages and salaries paid to employees involved in manufacturing are known as labor costs.For some small businesses, overhead costs make up the majority of production costs.These costs can be broken down into direct and indirect labor.These costs can be direct or indirect.Direct labor costs include the wages that are paid to employees that physically handle the product.However, glue and other fasteners may not be cost effective to track in this manner.For this reason, direct labor is also referred to as touch labor.

The Elements of Cost are the three types of product costs (labor, materials and overhead) and period costs.

Materials
Materials costs are the tangible goods used in producing the product. These costs can be direct or indirect. Direct materials are the quantifiable and traceable costs of materials used in production.

Indirect materials either cannot be traced to products or it is not cost effective to do so. For example, a company producing artisan crafts may consider wood to be a direct material, as the company can easily quantify how much wood goes into each craft. However, glue and other fasteners may not be cost effective to track in this manner. In that case, these items would be considered indirect materials.

Labor
Wages and salaries paid to employees involved in manufacturing are known as labor costs. These costs can be broken down into direct and indirect labor. Direct labor costs include the wages that are paid to employees that physically handle the product. For this reason, direct labor is also referred to as touch labor.

Indirect labor costs are any other wages and salaries related to production, but are not traceable back to units of product. For example, wages for materials handlers and line workers are usually considered to be direct labor costs. However, factory maintenance workers, plant supervisors and quality control engineers would be considered indirect labor.

Overhead
Overhead costs are related to production, but are not classified as direct labor or direct materials. This includes all indirect labor and materials costs, as well as any other untraceable costs. Common overhead costs include depreciation on factory equipment, manufacturing rents, supplies costs, insurance costs and licensing fees.

For some small businesses, overhead costs make up the majority of production costs. In these cases, small-business owners should be careful to recognize that just because overhead costs are not easily traceable to products doesn't mean that effective cost management is any less important.