Transparency Master 2-2

MANUFACTURING

COSTS

Direct Materials - Materials and component parts that become an integral part of the final product. These materials can be traced directly to a finished unit of product.

Direct Labor - cost of wages paid to employees who work directly on the           product.

Factory Overhead - all other costs incurred in making the product.

These costs include the following:

l. General manufacturing costs that cannot              be traced directly to the product:

            Utilities (heating, lighting)

            Depreciation on machines

                                       Property taxes

            Insurance

2. Indirect Labor - wages/salaries paid to workers who are necessary to keep the factory running, but do not work directly on the product:

                                Maintenance workers

                                Janitorial staff

                                Factory personnel department

                                Plant manager and supervisors

3. Indirect Materials - materials used in the manufacturing process that do not end up in the final product:

        Materials used to test machines

Lubrication used on machines

NOTE: Some direct materials and direct labor costs may be treated as factory overhead costs if they are insignificant.

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