• Direct Cost & Indirect Cost Definition:

Direct costs are the expenses that are directly related to the project. eg: raw materials, labour, equipment and rental costs.

While,

Indirect costs are more than expenses involved in creating a product to include costs related to maintaining and operating a business. Eg: management, general administration, utility costs etc.

• Examples:

Examples of direct costs include:

1) Equipment costs

2) Raw materials cost

3) Manpower cost

4) Project related travel costs.

5) Manufacturing costs.

Examples of indirect costs include:

1)Rent

2) Utilities

3) General office expense

4) Professional expenses

5) Other overhead costs

6) Office supplies cost

7) Insurance costs

• Direct costs vary significantly within a given product volume and therefore are considered a variable cost.

Whereas,

Indirect costs do not vary significantly within certain product volumes or other activity indicators and therefore are considered a fixed cost.

• Direct cost benefits the single project.

Whereas,

Indirect costs benefits multiple projects.

• The direct cost concept is immensely useful for short-term decision making, but it can lead to negative results when used for long-term decision making because it does not include all of the costs that can be applied to long-term decisions.

Whereas,

Indirect cost concept is useful for short and long-term decision making. Indirect costs are those costs which are required to keep a business or organization running.