Which category is one of the three categories of product costs in a firm that makes cars?

• A. Manufacturing overhead
• B. Direct materials
• C. Direct labor
• D. Selling expenses

Answer: (A)

Product costs in manufacturing are divided into direct materials, direct labor, and manufacturing overhead. Manufacturing overhead covers the factory costs that can’t be traced to a single car, such as utilities for the production plant, depreciation on machinery, indirect materials, and the wages of factory supervisors. These costs are tied to the production process and become part of the inventory cost, then move to cost of goods sold when the cars are sold. Selling expenses, by contrast, are not part of product cost; they are period costs recorded separately from inventory. So manufacturing overhead fits as one of the three main product-cost categories for a car maker.