How do direct materials costs differ from direct labor costs?

Direct materials costs are indeed associated with the raw materials that are used directly in the production of a product. These costs are essential since they include all the expenses incurred to acquire the physical materials that go into the final product. For instance, if a company manufactures wooden furniture, the cost of the wood and coatings would be considered direct materials.

On the other hand, direct labor costs represent the wages paid to workers who are directly involved in the production process. This includes the compensation for employees who actively work on manufacturing the product, such as assembly line workers or machinists.

The distinction between these two types of costs is crucial in managerial accounting as they both contribute to the total cost of goods manufactured and help determine product pricing and profitability.