Direct Cost – Definition, Explanation, Examples
Direct Cost Definition
Direct cost is a type of cost associated with the production of specific goods or services. The cost of any material which directly used to produce a product/service can be considered a direct cost.
A direct cost is traceable to the production of a product or service. Direct costs are usually variable costs, which means the cost varies with the level of production.
Understanding Direct Cost with Examples
The cost of the materials used for production is considered a direct cost. Production staff wages can not consider a direct cost because employees are paid for the duration of their work shifts, irrespective of the volume of production.
As an example, if we think about a car manufacturing company, the cost of individual parts used to manufacture a car can be considered a direct cost.
Direct Cost Examples
Following are some examples of direct costs:
- Cost of Materials
- Cost of Supplies
- Total Wages for the Production Staff
- Electricity or Fuel Consumption for Production