Direct materials costs are the costs of materials used in
making a product that can be conveniently and economically traced to specific
product units. Direct labor costs include all labor costs needed to make a
product or service that can be traced to specific product units. All other
production-related costs are classified and accounted for as overhead costs.
Such costs cannot be easily traced to end products or services, so a cost
allocation method is used to assign them to products or services.
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