What Are Direct Labor Costs And Their Impact On Cost Of Goods Sold And Inventory?

Direct labour as a part of Cost of Manufacturing, increases cost of goods as well as cost of inventory by the amonut incurred as Direct labour.

Direct Labour costs are any costs that are directly linked to the manufacturing of a product. Basically, anything you can see used in the product/ to make the product.

E.g, a table. The wood used, screws/nails and steel and all direct labour costs.
The person paid to make the table is NOT a direct cost, it is an indirect labour cost.

The costs of the labour will effect the price of the product. If it cost more to make the table, for example, you have to sell it for a higher price to earn a greater contribution margin. This way, the business makes a profit and pays for the labour and materials to manufacture the product.

The product belongs to the business, therefore it is the business' inventory. Only when it is sold, does it become Cash at bank, and in turn the inventory numbers lower (minus one product. E.g. 1 less table in stock).

Hope you get something from that.