Direct Cost
What is a direct cost?
A direct cost is a cost that is directly involved in producing particular goods or services. All raw material inputs, for instance, are considered direct costs. Overhead costs such as electricity or administrative expenses are indirect costs because they cannot be directly traced to the production of a particular good or service.
What are the traditional types of cost?
The three classic distinctions between types of cost are:
- Raw materials
- Labor
- Indirect costs
In such a typology, raw materials and labor excluding the cost of employees not directly involved in production, such as accountants and secretaries, combine to form the direct cost.
Are direct costs the same as variable costs?
Variable costs are defined as any costs that changes in proportion to production. Raw materials are a classic example of a variable cost. Though direct costs are often variable costs the two are not synonymous as many variable costs are not direct costs and some direct costs are not variable costs.