Direct cost is a cost that can be clearly allocated to a particular product. The labour and materials will be referred to as direct labour and direct materials.
Indirect costs
Indirect materials will cover stores that are used for all departments, for example lubricants for machines. Indirect labour will include the cost of supervision and maintenance.
Overheads
A business performs a number of other functions in addition to production, for example marketing, personnel, research and development and finance. Costs which are clearly attributable to one of these functions are termed overheads. They include labour, materials and expenses.
Marginal costs
In economic theory marginal cost is defined as the cost of producing one extra unit of output. It is calculated by subtracting the total cost (total fixed costs + total variable costs) of the first level of output from the total costs of the second level of output. Accountants use the same basic definition of marginal cost but use only direct costs in its calculation.
Imputed costs
His is the cost of using something the business already owns. It can be seen as a method of giving a monetary value to the opportunity cost of using a resource.
