Direct Cost

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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.

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BREAKING DOWN '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.

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RELATED FAQS
  1. What is the prime cost formula?

    The term "prime cost" refers to the direct costs of manufacturing an item. It is calculated by adding the cost of raw materials ... Read Full Answer >>
  2. What are some common financial instruments involved in speculation?

    Direct costs are not allocated like indirect costs, because direct costs can be traced back directly to a cost center that ... Read Full Answer >>
  3. Why is it important for a business to understand prime costs?

    Prime costs are defined as the direct expenses associated with producing a product or service and are most commonly referenced ... Read Full Answer >>
  4. How can I tell if a cost is a direct cost?

    In financial and managerial accounting, direct costs are materials, labor and expenses related to the production of goods ... Read Full Answer >>
  5. What is the difference between direct costs and variable costs?

    Direct costs and variable costs are expenses associated with production. Direct costs are expenses that can be directly traced ... Read Full Answer >>
  6. What are the different types of costs in cost accounting?

    Cost accounting is an accounting process that measures and analyzes the costs associated with products, production and projects ... Read Full Answer >>
  7. Are fringe benefits direct or indirect costs?

    Almost any non-salary benefit provided by an employer to an employee is considered a "fringe" benefit. These benefits can ... Read Full Answer >>

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