Explain The Difference Between Direct And Indirect Costs.?

Question

Explain The Difference Between Direct And Indirect Costs.?

3 Answers

Answer Question

Answer 1

The difference between direct and indirect cost is that direct cost can be traced directly to a so-called cost objective, such as a product or service, for instance, while indirect cost cannot be directly assigned to a particular cost objective.The individual definitions and example below will further explain the differences between direct and indirect costs:

Direct Cost

Direct cost can be assigned directly to a specific product or service. It is the cost directly related to a product, such as labor or material cost, or an activity, such as the administration of a business.

Indirect Cost

This is not traceable directly to any particular cost object, but affects a multitude of costs within a business. Indirect cost is often also referred to as common, or overhead cost.

Difference Between Direct and Indirect Cost

A company produces multi-packs of dog food. Each can of dog food has a direct cost consisting of the cost for the ingredients, the can, the label on the can, the salaries of the workers involved in producing the contents of the can, the canning and labeling, as well as the actual power consumed by machinery during these processes.The same can has indirect cost consisting of the outer packaging of a multi-pack; administration cost, including salaries of administration and managerial staff, equipment, etc; rent for the premises; overall power and other utility costs of the premises, as well as sales and advertising cost, including travel expenses for reps, etc.Each department of the company has direct cost of staff salaries, equipment etc directly involved in running the department, while other business costs are indirect.For the business as a whole, all the cost that is regarded as indirect cost for each individual can or department ultimately becomes direct cost.

Answer 2

Direct costs are expenditures which can be economically identified with a specific saleable unit of output. Indirect costs often called overheads are expenditures which cannot be economically identified with a specific saleable unit of output.
Direct costs include direct materials, labour and expenses. Indirect costs can be categorised by manufacturing/production, administration, and selling/distribution.

Answer 3

Direct cost is the cost wich is related to the manufacturing of a single product indirect cost is the cost wich does not relate to production of the product but relate to all org. Cost such as that can rent can be the sallary of security guard and can be other cost such as glue in production of chairs it is indirect