This refers to costs which are directly attributable to goods produced or services delivered.
Examples of direct costs include labour costs of the staff required to produce the item and its raw materials. A business’s direct costs vary according to the quantity of goods produced. Some costs may be direct or indirect, depending on their use; for example fuel cost in an accountancy practice is usually allocated as an indirect cost, while for a distribution company it is usually a direct cost.
Direct cost is a term normally used in management accounting and financial management.
Explore our learning zone to discover more