Direct Costs

Expenses that can be traced directly to specific cost objects like products or services, including direct materials and labor required for production.

#Revenue and Expenses#Cost Accounting#Production Management

Direct Costs

Expenses that can be traced directly and exclusively to a specific cost object, such as a product, service, department, or project, without arbitrary allocation.

For instance, in furniture manufacturing, direct costs would include the wood, fabric, foam, and labor directly involved in producing each piece, while excluding costs like factory rent or supervisor salaries that benefit multiple products.

Direct costs are essential for determining product profitability, setting prices, and making production decisions. They typically include direct materials and direct labor, though some costs may be classified differently depending on traceability and materiality. In service businesses, direct labor often constitutes the primary direct cost, while manufacturers typically have significant direct material costs as well.