What are the direct and indirect costs

 

The following questions often repeated:

Is this cost charged to direct or indirect costs?

How are indirect costs distributed to products, especially if they are diverse?

And what does that relate to pricing and marketing?

 

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Direct costs:

It is the costs associated with product or service production such as labour costs and manufactured materials of the product.

For example, a door manufacturer can determine the direct costs of door production as the cost of total workers’ wages and the cost of raw materials only.

 

Indirect costs:

Costs that contribute to the production of the product but are indirect such as lighting and water costs and salaries of senior management, marketing, human resources and procurement employees. These costs are used for the factory or company as a whole. Costs such as maintenance of machinery depreciation equipment can be included.

It is easy to identify direct costs despite challenges in calculating raw materials, especially if the product’s production enters a large number of raw material types and we will devote a workshop to this.

 

Indirect costs can be distributed according to the sales objectives. The more sales of a specific product, the higher the cost.