Determination of type of costs:
There are two main types of costs, which are Direct Costs and Indirect Costs. Direct costs are those costs which are directly traceable to the product, for example; direct material, direct labor etc. On the other had indirect costs are common costs incurred which are not directly traceable to the product, for example: Indirect material, indirect labor etc.
Oil to keep the factory machinery lubricated is an example of indirect material which is an Indirect Cost.
