Question

There are three types of manufacturing costs, direct materials, direct labor, and manufacturing overhead. Direct materials and direct labor are able to be traced directly to units of product. Manufacturing overhead is not. Why not? How is manufacturing overhead applied to products?

Answer 1

Step-by-step explanation:

As we know, the total manufacturing cost equals to

= Direct material + direct labor + manufacturing overhead

Where,

Direct material and direct labor are charged to the products whereas overhead is an indirect expense that is not directed to the product. It is allocated based on the cost drivers.

Like - if we take the example of rent, then this expense should be allocated based on the square feet.

Therefore, manufacturing overhead is not directly charged on the products.