Manufacturing costs are composed of two kinds of costs: direct labor costs and direct material costs, according to AccountingDetails.com. These costs are directly related to the making of the product or service. It is necessary for calculating the production cost per unit, according to Investopedia.
Direct materials are those that become part of a finished product. They are sometimes called raw materials. Though the term "raw materials" evokes images of basic resources like wood or iron ore, this is not always the case. The finished product of one company can be the raw material for the manufacturing process of another company. For example, a plastics molding firm may produce laptop covers that become the raw material for a personal computer assembly plant.
Direct labor is that which can be traced to putting single units of the product together. Another term for this is "touch labor" because the worker physically touches the raw materials in assembling the product. Examples of direct labor include the salaries of assembly line workers or machine operators in a factory and the wages of a carpenter or bricklayer in a housing project. Any labor that is not physically traceable to a product falls under indirect labor and forms part of manufacturing overhead costs. Examples of indirect labor include administrative, engineering support and housekeeping services.