DIRECT AND INDIRECT COSTS: Direct cost: Costs that can be identified specifically and exclusively with a gi ven

cost objective in an economically feasible way. Indirect costs: Costs that cannot be identified specifically and exclusively wit h a given cost objective in an economically feasible way. CATEGORIES OF MANUFACTURING COSTS: All costs that are eventually allocated to products are classified as (1) direct material (2) direct labor and (3) factory overhead Direct materials costs include the acquisition costs of all materials that are p hysically identified as a part of the manufactured goods. Direct labor costs include the wages of all labir that can be traced specificall y and exclusively to the manufactured goods in an economically feasible way. Factory overhead include all the costs associated with the manufacturing process that cannot be traced to manufactured goods in an economically feasible way. NON-MANUFACTURING COSTS Usually nonmanufacturing costs are subclassified into two categories: 1- Marketing or selling costs 2- Administrative costs PERIOD COSTS vs PRODUCT COSTS Period costs are those costs that are matched against revenues on a time period basis. All selling and administrative expenses are considered to be period costs . They will appear on the income statement as expenses in the time period in whi ch they are incurred. Product costs consist of the costs involved in the purchase or manufacture of go ods.In the case of manufactured goods, these costs consist of direct materials, direct labor and manufacturing overhead. They are treated as expenses in the tim e period in which the related products are sold. VARIABLE AND FIXED COSTS: A variable cost is a cost that varies in direct proportion to changes in the lev el of activity. The activity can be expressed in many ways, such as units produc ed , units sold, miles driven, beds ocuupied, lines of print, hours worked and s o forth. A good example of a variable cost is direct materials. A fixed cost is a cost that remain constant regardless of changes in the level o f activity within the relevant range. Rent is a good example of a fixed cost.