What is the difference between direct and indirect costs?

• Direct costs are costs that can be directly related to the production of goods and services. • Indirect costs are costs that cannot be directly associated with the production of goods and services. • The main difference between direct and indirect costs is that direct costs can be charged directly to a particular product, service, or unit.

What is a direct cost vs. indirect cost?

Direct costs tend to be variable costs, while indirect costs are more likely to be either fixed costs or period costs. At a minimum, direct costs should always be included in the derivation of a product’s price, since the established price must always equal or exceed its direct cost; otherwise, every sale will generate a loss.

What does indirect cost mean?

What is Indirect Cost? Indirect cost is the cost that cannot be directly attributed to the production as these costs are incurred in general costs and can be fixed or variable in nature like the office expenses, salary paid to administration, sales promotion expense, security and supervision expense, etc.