Manufacturing costs are the expenses directly associated with the production of goods. They include direct materials, direct labor, and manufacturing overhead.
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Manufacturing costs are categorized into three main components: direct materials, direct labor, and manufacturing overhead.
Direct materials are raw materials that can be directly traced to the finished product.
Direct labor refers to wages paid to workers who are directly involved in the production process.
Manufacturing overhead includes all indirect costs associated with production such as utilities, depreciation, and maintenance.
In job order costing, manufacturing costs are assigned to specific jobs or batches while in process costing they are averaged over all units produced.
Review Questions
What are the three main components of manufacturing costs?
How do manufacturing costs differ between job order costing and process costing?
What is included in manufacturing overhead?
Related terms
Direct Materials: Raw materials that can be physically and directly associated with the finished product during the manufacturing process.
Direct Labor: The wages of workers who are directly involved in converting raw materials into finished products.
Manufacturing Overhead: All indirect production costs that cannot be traced directly to specific products, such as utilities and equipment depreciation.