Final answer:
In a traditional manufacturing company, product costs consist of direct materials, direct labour, and factory overhead, which includes both variable and fixed costs.
Step-by-step explanation:
In a traditional manufacturing company, product costs include direct materials, direct labour, and factory overhead. This comprehensive cost grouping is critical since it encompasses all the expenses directly tied to the production of goods. Direct materials are the raw materials that become part of the final product. Direct labour involves the hands-on work of creating the product. Factory overhead includes a variety of costs such as the rent for the production space, machinery, and equipment, which are considered fixed costs because they do not vary with the level of production. Meanwhile, direct materials and labour are typically variable costs, which fluctuate with the output level. Certain businesses, like computer chip manufacturing, will have significant fixed costs due to the expensive facilities required, while others may have fewer fixed costs if, for example, they rent resources as needed.