Author Topic: Labor Cost Vs. Material Cost  (Read 1626 times)


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Labor Cost Vs. Material Cost
« on: March 24, 2015, 01:48:52 AM »
Labor costs and materials costs are completely different entities, with two commonalities. Both types of costs can be deducted, and both are used to make a product or provide a service to customers. Both costs are calculated during the budgetary process and are typically considered when determining the amount to charge for the end product. Understanding the difference between labor costs and materials costs is essential to accurate budgeting and making a profit.


Raw materials include all tangible items that go into the manufacturing of the finished product, including individual parts that work together to complete the product, the adhesive that holds those parts together and the boxes in which the products are shipped. Material costs and are identified as budgetary line items. Direct materials are items that are easily tracked as part of a final product. For example, a tiny motor that drives the fan in a computer is considered a raw material as it is only part of the total product, which is the built computer. The fan is also a product, for whatever company manufactured it.
Direct Labor

Direct labor describes anyone who is directly involved with the manufacturing of a product. Assembly workers who put the products together, quality control engineers who test the products to be sure they are operational, engineers who design the product and draw up the plans for manufacturing, and warehouse workers that package and ship the products are all direct laborers.