Categories of direct and indirect costs

Direct costs /prime costs
Direct costs are further divided into the following categories:
(a) Direct materials These are the cost of raw materials which one can directly identify in
product e.g. wheat in breach, cloth in clothes e.tc.
(b) Direct Labour This is labour costs which is directly associated with a product e.g. wages
of a machine operator or wages of a machine operator or wages of labourers directly
involved in product process e.g. sorting out materials, mixing etc.
(c) Direct expenses These are expenses which are directly incurred in the process of
manufacture of a product e.g royalties paid to the owner of a machine or to the owner of a
quarry land where minerals are extracted.

Indirect costs overheads
They are divided into: -
(a) Indirect materials These are costs raw materials which one cannot easily identify with a
particular product e.g. salt/sugar in bread, buttons in clothes, bolts in furniture etc.
(b) Indirect Labour This is labour cost which is not easily associated with a product e.g. salary of a foreman or supervisor. Because such a person is supervising several production floors his/her services cannot be associated with one single production process.
(c) Indirect expenses These are expenses which can’t be directly associated with the product e.g. insurance of factory machines, buildings, rent, water, power & lighting, depth of machines,
etc

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Titany answered the question on December 10, 2021 at 07:57