What are the direct costs?

In finance, direct costs are costs associated with a specific project, department or activity. The cost of this type is sometimes referred to as hard costs that are found with almost every type of business, starting with research and development, movement of sales and marketing campaigns and to produce various types of goods and services. Direct costs are often a type of fixed expenditure, but there are some situations where it can also reduce variable costs into this category.

The key to understanding what it does and does not represent direct costs, is to identify costs that apply only to a specific project, and has nothing to do with another activity that takes place simultaneously. In order to be the real hard costs, there must be the costs of resources that benefit this project. For example, if the project is to assemble a phone, the cost of the headphone cover, the internal perimeter plate and the wiring would fall into the T into the Tcetory of direct costs. In addition, wages paid exchanges wouldOU was also direct costs for working with the construction of the phone.

In situations where expenditures do not go in favor of a specific task or project, costs would be considered indirect. Tools such as electricity used to operate a device in which several different product lines or other activities are located would not be considered at direct costs, as these services benefit more than one particular project. The cost of this type would be shared between different projects than to be connected directly to one activity.

Not every business operation evaluates direct costs in exactly the same way. Depending on the structure of the company, there may be something that is considered in one business culture as hard costs, classified as indirect costs in another culture. If the internal instructions are to determine what is and is not direct costs, remain consistent, it is still possible to properly ur urČIT historical costs or costs of sold goods with high accuracy. The same consistency allows to compare absorption costs from one period to another and find out whether there was an increase in direct costs associated with a specific function or project.

Identification of direct costs associated with a particular project or operation is very important. If the costs associated with the project are not recognized and taken into account, it is not possible to determine the total costs associated with the project. Without knowing the total cost, it is very difficult to determine the return on the project.