Difference Between Direct Costs And Indirect Costs

Major differences between direct costs and indirect costs are as follows:

1. Meaning

Direct Cost: Costs associated directly with the production of specific products and can be easily identifiable.

Indirect Cost: Cost associated in the production process but cannot easily be identified.

2. Traceable 

Direct Cost: It can be easily traced and computed.

Indirect Cost: It cannot be identified and traced easily.

3. Per Unit Cost

Direct Cost: It can be calculated and converted into per unit cost of the product.

Indirect Cost: It cannot be converted into per unit cost.

4. Aggregate

Direct Cost: Aggregate or total direct cost is called prime cost.

Indirect Cost: Aggregate of total indirect cost is known as overheads.

5. Vary

Direct Cost: It varies or change proportionately according to the change in output.

Indirect Cost: It does not varies proportionately according to the output level.

6 Examples

Direct Cost: Direct materials cost, direct labor cost and other direct expenses.

Indirect Cost: Indirect materials cost, indirect labor cost and other indirect expenses.

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