Direct costs are expenses that can be specifically traced to a product or service and are necessary for its production. These costs include materials, labor, and overhead directly related to the production process. For example, the cost of raw materials used in manufacturing a product is a direct cost.
Indirect costs, also known as overhead costs, are expenses that cannot be directly attributed to a specific product or service but are necessary for the overall operation of the business. These costs are incurred for the benefit of multiple products or services. Examples of indirect costs include rent, utilities, salaries of support staff, and general administrative expenses that support the production process but are not directly tied to it.
In summary, direct costs are specifically related to the production process and can be directly traced to a particular product or service, while indirect costs are more general expenses incurred to support the overall operation of the business.
Difference between direct and indirect cost in business studies
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