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.

Updated on: 25-Jul-2020


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