Business Glossary

expenses that can be directly identified with the costing object such as a product and department. Examples are direct materials, direct labor, and advertising outlays made directly to a particular sales territory.

work directly involved in making the product. Examples of direct labor costs are the wages of assembly workers on an assembly line and the wages of a machine tool operator in a machine shop. Direct labor is aninventoriablecost.

total of all costs of manufacturing except direct materials and direct labor, also called manufacturing overhead, indirect manufacturing expenses, factory expenses, and factory burden. In addition to indirect material and indirect labor, it includes such items as depreciation, setup costs, quality costs, cleanup costs, fringe benefits, payroll taxes, and insurance. It is an inventoriable cost charged by allocation to work-in-process (WIP).

all the material that becomes an integral part of the finished product. Examples are the steel used to make an automobile and the wood to make furniture. Direct materials are charged to work-in-process as aninventoriablecost.

expenses that remain constant in total regardless of changes in activity within a relevant range. Examples are rent, insurance, and taxes. Fixed cost per unit changes as volume changes.