 some combination between fixed costs and variable costs. And what we really want to do is break them out between those two for our projection purposes. And we'll talk about different methods that we can do that. That's going to be one of our goals in managerial accounting is to break everything out between fixed costs and variable costs that allowing us to make nice projections into the future. Another way that we can classify costs is by function. What does that cost do? Why are we incurring this cost? So we can have direct costs and indirect costs. Direct costs are going to be costs that are traceable to a cost object. So if we're in a production cycle then direct costs would be things like direct materials and direct labor. These are things that we can trace to a particular unit of inventory that we are producing. So direct materials we know exactly for making guitars for example we can trace the wood in the guitar to a particular guitar that we are producing and allocate the cost of that wood to that piece of inventory to that guitar. If we're talking about direct labor same thing if someone's putting together a guitar we can allocate the cost of the labor that's being put together to a particular piece of inventory a particular guitar. On the other hand indirect costs are things that we can't trace are not traceable to a cost object. So examples of that are going to be maintenance costs for multiple departments or things like glue or things that we can't put to a particular guitar. If we're making one guitar then we can't really have these indirect costs allocated specifically to that guitar it's going to be indirect. So if we talk about maintenance for multiple departments then possibly the maintenance is going to be for the entire warehouse and we can't apply the maintenance for example to one particular guitar because we don't know how much to apply to a particular guitar. The production process needs maintenance within the warehouse but we can't assign it directly to a particular guitar and we can take that concept to different departments as well. If we pay for maintenance for multiple departments then the maintenance is there for multiple departments but it's difficult to allocate to a particular department and we're going to have to figure out some type of way then to allocate these indirect costs. That's going to be one of the challenges we have if we have maintenance for multiple departments or multiple units of inventory how then can we take this information and allocate it to a it's particular unit a particular unit which we don't really know. We have the similar problem if we're talking about small materials like glue or something for a guitar. It might be possible for us to classify glue as a direct material that we can then allocate specifically to a particular guitar that was used it was used in. However doing so would be not cost effective typically so if we're talking about something like glue or something like that then we might have to use some other type of allocation method. We don't know exactly which piece of unit of inventory it was used on so it's indirect so we have to find some way then our challenge will be to take these indirect costs these costs that we know need to be allocated in some way in order for us to properly value our inventory and try to allocate them in some way even though we don't know directly where they apply and that'll typically be the concept of overhead so anything for example in a factory that we work on will be well if we can't apply it to directly direct materials or labor it's probably going to be an indirect cost something that's going to go into overhead that we're then going to have to figure out how can we allocate this to our units of inventory to properly allocate the inventory so if we're talking about depreciation on a warehouse then that depreciation is part of the cost of making stuff making the guitars but how do we allocate it to any particular guitar we're going to have to figure out how we can make those types of allocations. There's a supervisor in the warehouse that's supervising all the guitars we make how do we know how much time we should put that supervisor's time on a particular job we'll have to figure out how we can make those allocations so that's going to be one of the challenges we'll have as we work through the manufacturing process as we allocate costs.