Cost

Product cost is the cost of direct labor, direct materials, and manufacturing overhead that are consumed to create a product. Product cost can also be considered the cost of the labor required to deliver a service to a customer.

Direct Material Cost
Definition: Direct material cost is the cost of materials used to manufacture a product or provide a service.
Direct Labor
Definition: Direct labor is production or services labor that is assigned to a specific product, cost center, or work order. When a business manufactures products, direct labor is considered to be the labor of the production crew that produces goods, such as machine operators, assembly line operators, painters, and so forth. When a business provides services, direct labor is considered to be the labor of those people who provide services directly to customers, such as consultants and lawyers.
Indirect Labor
Definition: Indirect labor is the cost of any labor that supports the production process, but which is not directly involved in the active conversion of materials into finished products
Indirect materials are materials used in the production process, but which cannot be linked to a specific product or job. Alternatively, they may be used in such insubstantial quantities on a per-product basis that it is not worthwhile to track them as direct materials (which involves including them in the bill of materials). Thus, they are consumed as part of the production process, but are not integrated in substantial amounts into a product or job.
Examples of indirect materials are:
• Cleaning supplies
• Disposable safety equipment
• Disposable tools
• Fittings and fasteners
• Glue
• Tape
• Oil
Definition: Factory overhead is the costs incurred during the manufacturing process, not including the costs of direct labor and materials.
Examples of factory overhead costs are:
• Production supervisor salaries
• Quality assurance salaries
• Materials management salaries
• Factory rent
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