direct labour and material

[Former Member]

Hi,

Overhead expenses are all costs on the income statement except for direct labor and direct materials.

May I know why direct labour and direct material not cost in income statement?

thanks

[atif_farooq]

Hi:

Direct material and direct labor are the cost that can be easily identified in production process. Direct material and direct labor are termed as prime costs ,when combined with overhead costs makes total manufacturing cost. Overhead costs being indirect cost of manufacturing e.g indirect labor (administration ,selling and management payroll costs),depreciation, utilities cost can not be directly attributed to production process,hence planning is done and activity rate is determined for each cost area so that it can be given its share of cost based on the usage.

Regards

[Former Member]

Hi All,

Thanks

I know they are part of the product cost. But also overhead also part of product cost.

Now I would like to know why direct labour and direct material not cost in income statement whereas overhead is?

Thanks again

[srinivasa_maruvada]

It is a cost classification and they are part of product costs and can be identifiable on a product and directly allocated to product.

Any material which we can touch, it is direct material

Any labour which incurred exclusively on a specific product is called direct labour. Ex: Production labour cost.

Administration labour cost which we can not identify on which product incurred, are classified as overhead.