Final answer:
Manufacturing costs include raw materials, direct labor, and manufacturing overhead, not selling and administrative expenses, research and development costs, or financing costs. These latter expenses are accounted for separately in business financial assessments.
Step-by-step explanation:
Manufacturing costs, also known as production costs or factory costs, primarily include Option 1: Raw materials, direct labor, and manufacturing overhead. These are the direct expenses that are related to the production process itself. Costs like selling and administrative expenses, research and development costs, and financing costs fall outside the scope of manufacturing costs. Instead, selling and administrative expenses are considered as operating expenses, whereas research and development costs and financing costs are accounted for separately from the day-to-day manufacturing operations.
It is crucial for anyone in the field of business to differentiate between these types of costs. Understanding that manufacturing costs consist of raw materials, direct labor, and manufacturing overhead helps businesses in assessing the efficiency of their production process and making informed financial decisions.