Direct cost and indirect Costs

Direct cost and indirect Costs

1.Tractability

Direct cost is directly traceable to a product where the indirect cost is not directly traceable to product.

2.Allocation

Direct cost is directly allocated to the product where the indirect cost is apportioned to the product using absorption rate.

3.Classification

Direct cost mainly classified as direct Material, Direct labor and direct expenses. Similarly the indirect cost can also be classified as indirect material, indirect labor and indirect expenses.

4.Reporting

Direct cost is reported as prime cost where when indirect cost added with the direct cost then it becomes the factory cost.