Direct and Indirect Costs

Direct costs are those cost that are directly related to production of the goods. There are three types of direct costs –

1. Direct material cost – It is related to those raw materials which are required for the production of the good during manufacturing. For example direct material for making steel is iron ore or for ice cream it will be milk.

2 Direct labor – It is related to the wages that is paid to the workers who are involved in the production process. For example labor of machine operators can be called as direct labor.

3. Direct Expenses – These all are the expenses which are directly attributable or which can be assigned to a product. For example insurance charge payable for raw materials or taking on rent special plant or machinery for production of a good.

Indirect costs are those costs which cannot be directly assigned to a single product rather it has to be assigned in some proportion to all products. It includes indirect material cost, example of which is consumable stores, grease that is required for various machineries, indirect labor who do not engage in the production of goods directly, for example salary of supervisors, store keepers etc…. The last is indirect expenses, the example of which is depreciation, power, taxes, rent etc….

0 comments… add one

Leave a Comment


Related pages


what is cash inflowswhat is meant by consigneeskim pricing strategybenefits of a command economyadvantages of conglomerateexamples of prestige pricingdistinguish between capital expenditure and revenue expenditurekpo abbreviationexample of a horizontal mergeradvantages of the mixed economywhat does perpetual succession meansubsidiaries of applefull form of ipodirect indirect quotationpraveen kumar meaningimplicit cost vs explicit costpros of urbanizationbank loan and bank overdraftwhat is a decentralised organisational structuredisadvantages of profitability ratiosmarket skimming and market penetrationdisadvantages capitalismwhat is privatization and commercializationadvantages of specialisation economicsexamples of inelastic goodsfifo method accountingwhat is the full form of gstautocratic managementmonopolistic marketcost push inflationstatutory liquidity ratio and cash reserve ratiodefinition of inferior goodsfifo method of stock valuationoperating lease finance lease differencejournal entry of loan taken from bankgolden rules of accounts with examplestypes of elasticity of demand in economicsexamples of price elastic goodsadvantages and disadvantages of bank loanwhat are the problems of barter systemdupont roe analysiscrr slrdirect quotation and indirect quotation examplesfull form cfaunitary elastic demandexplain the barter systemmateriality accounting principledifference between demat and trading accountwhat is operating cycle in financeservices rendered accounting entrytally full formhorizontal analysis of a balance sheetdisadvantages of a monopolyadvantages and disadvantages of using social mediainferior goods meaningsole proprietorship features advantages and disadvantagesdefinition centrally planned economywhat is a floating currencyunbilled deferred revenueadvantages of variable costingpurpose of preparing trial balancedisadvantages of global tradeadvantages and disadvantages of debit card and credit cardfunctional departmentationdiscounting bill of exchangewhat is the meaning of conglomerate companydifference between overdraft and term loaneconomic systems advantages and disadvantagesfluctuating exchange ratewhat is the law of diminishing returns in economicswhat are durable and nondurable goodsindirect quotationdisadvantages of activity based budgetingexamples of cost push inflationwhat is oligopoly and monopolyfictitious assets examplesformula for operating leveragemerits and demerits of debit cardbenefits of urbanisationfullform of tds