Differentiate between direct cost and indirect cost.

The major differences between direct cost and indirect cost are as follows −

Direct cost

• 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.

Indirect cost

• 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.