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Differentiate between direct cost and indirect cost.
The major differences between direct cost and indirect cost are as follows −
It is the cost, which is directly/easily referable to the product/services.
It is easily calculated.
It is attributable, has variable cost and can be easily identified.
It is expended on specific cost object.
All direct costs are known as prime cost.
Examples − raw material cost, transportation cost etc.
It is the cost that is not easily referable to a particular service/product.
It is not easily calculated.
It is not attributable, has fixed cost and is difficult to identify.
It is expended on multiple cost objects.
All indirect costs are known as overhead cost.
Example − Administration, office expenses etc.
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