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Types of Cost of Goods Sold


✦ Direct Labor:

- Description: Wages and benefits paid to employees who are directly involved in the production.

- Example: A factory worker’s hourly wage in a manufacturing plant.


✦ Direct Materials:

- Description: The raw materials that are used to produce a finished product.

- Example: Wood used to make furniture in a carpentry shop.


✦ Manufacturing Overhead:

- Description: Indirect costs associated with manufacturing, not tied to a specific product.

- Example: Factory utility bills or depreciation of manufacturing equipment.


✦ Freight and Shipping:

- Description: Costs associated with transporting raw materials to the factory or finished goods to the customers.

- Example: Shipping fees paid to a courier service for product delivery.


✦ Factory Maintenance:

- Description: Costs incurred to maintain and repair machinery and equipment.

- Example: Costs of replacing a broken part on a production line machine.


✦ Quality Control:

- Description: Costs associated with ensuring products meet company and industry standards.

- Example: Salaries of quality assurance inspectors in a food processing plant.


✦ Depreciation:

- Description: The allocation of the cost of tangible fixed assets over their useful lives.

- Example: Depreciation of a pizza oven in a restaurant over its expected 10-year lifespan.


✦ Work-in-Process:

- Description: Costs of partially completed goods that are still in the production process.

- Example: The accumulated costs of an incomplete batch of wine in a winery.


✦ Indirect Labor:

- Description: Wages for employees not directly involved in production but necessary for the process.

- Example: Salary of the maintenance team in a manufacturing plant.


✦ Indirect Materials:

- Description: Materials used in the production process but not traceable to a specific product.

- Example: Lubricants and cleaning supplies for machines in a factory.


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