Direct Cost

AAA

DEFINITION of 'Direct Cost'

A price that can be completely attributed to the production of specific goods or services. Direct costs refer to materials, labor and expenses related to the production of a product. Other costs, such as depreciation or administrative expenses, are more difficult to assign to a specific product, and therefore are considered indirect costs.

INVESTOPEDIA EXPLAINS 'Direct Cost'

For example, the cost of meat in a hamburger can be attributed directly to the cost of manufacturing that product, as could the cost of packaging materials and preservatives. These are considered variable costs that are inconsistent and change amounts often. An indirect cost, such as the hamburger manufacturer's legal fees and staffing, is anything that is not a direct cost.

RELATED TERMS
  1. Cost Of Labor

    The sum of all wages paid to employees, as well as the cost of ...
  2. Historical Cost

    A measure of value used in accounting in which the price of an ...
  3. Cost Of Goods Sold - COGS

    The direct costs attributable to the production of the goods ...
  4. Unit Cost

    The cost incurred by a company to produce, store and sell one ...
  5. Absorption Costing

    A managerial accounting cost method of expensing all costs associated ...
  6. Occupational Safety And Health ...

    Law passed in 1970 to encourage safer workplace conditions in ...
Related Articles
  1. Taxes

    Are fringe benefits direct or indirect costs?

    Learn how to allocate costs associated with fringe benefits provided to employees and how to determine when a cost is either direct or indirect.
  2. Entrepreneurship

    Six Steps To A Better Business Budget

    This easy but essential process helps owners ensure that their businesses can stay afloat.
  3. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  4. Fundamental Analysis

    Measuring Company Efficiency

    Three useful indicators for measuring a retail company's efficiency are its inventory turnaround times, its receivables and its collection period.
  5. The cash conversion cycle (CCC) is one of several measures of management effectiveness.
    Investing Basics

    Understanding The Cash Conversion Cycle

    Find out how a simple calculation can help you uncover the most efficient companies.
  6. Forex Education

    Understanding The Income Statement

    Learn how to use revenue and expenses, among other factors, to break down and analyze a company.
  7. Fundamental Analysis

    What is the difference between operating income and net income?

    Understand the difference between operating income and net income, including the calculations and interpretations of each when reading a balance sheet.
  8. Fundamental Analysis

    What is the difference between operating income and EBITDA?

    Read about the major differences between earnings before interest, taxes, depreciation and amortization (EBITDA) and operating income in a company's financial health.
  9. Fundamental Analysis

    What is the difference between operating income and gross profit?

    Learn more about the difference between operating income and gross profit, two accounting figures that appear on a company's income statement.
  10. Fundamental Analysis

    What is the difference between operating income and operating profit?

    Find out why operating margin and operating income can be treated synonymously with EBIT, but how they all differ from operating profit margin.

You May Also Like

Hot Definitions
  1. Christmas Tree

    An options trading strategy that is generally achieved by purchasing one call option and selling two other call options at ...
  2. Christmas Club

    A short-term savings account that usually pays out the full account balance to its account holders once each year, right ...
  3. Boston Snow Indicator

    A market theory that states that a white Christmas in Boston will result in rising stock prices for the following year. For ...
  4. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  5. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  6. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
Trading Center