In making bicycles, a business has the following costs: tyres, salaries of employees who put tyres on the wheels, factory building depreciation, grease, spokes, factory foreman’s salary, handlebars, and salaries of factory maintenance employees. Classify each cost as direct materials, direct labour or manufacturing overhead.
Reasoning
Direct materials are raw materials that can be physically and economically traced to the finished product. Direct labour is the work of factory employees that can be physically and economically traced to the finished product. Manufacturing overheads are costs that are indirectly associated with the finished product.