Difference Between Direct And Indirect Costs

July 18th, 2006 Comments off
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Direct costs:

Those costs that are traced to a specific cost objective like product/service.

Indirect costs:

Those costs that CANNOT be directly traceable to a particular cost objective and incurred for multiple cost objectives.

Can also be called Common Cost.

Salient Point:

Direct costs are ALLOCATED to a specific cost objective but

Indirect costs or common costs are assigned to multiple cost objective BY APPORTIONMENT.

For example : Rental for a premise occupied by several departments is being apportioned on the basis of the relative square meters used

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Financial Accounting


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