classification of Product Direct Costs cost and management accounting mcq notes
Direct costs: Direct costs are generally seen to be variable costs and they are called direct costs because they are directly associated with manufacturing. In turn, the direct costs can include:
* Direct materials: plywood, wooden battens, fabric for the seat and the back, nails, screws, glue.
* Direct labour: sawyers, drillers, assemblers, painters, polishers, upholsterers
* Direct expense: this is a strange cost that many texts don't include; but (International Accounting Standard) IAS 2, for example, includes it. Direct expenses can include the costs of special designs for one batch, or run, of a particular set of tables and/or chairs, the cost of buying or hiring special machinery to make a limited edition of a set of chairs.
Total direct costs are collectively known as Prime Costs and we can see that Product Costs are the sum of Prime costs and Overheads.