What is the main difference between direct and indirect costs?
Practice Questions
1 question
Q1
What is the main difference between direct and indirect costs?
Direct costs are variable, indirect costs are fixed
Direct costs can be traced to a specific cost object, indirect costs cannot
Direct costs are always higher than indirect costs
There is no difference
Direct costs can be traced directly to a specific cost object, while indirect costs cannot.
Questions & Step-by-step Solutions
1 item
Q
Q: What is the main difference between direct and indirect costs?
Solution: Direct costs can be traced directly to a specific cost object, while indirect costs cannot.
Steps: 4
Step 1: Understand what a cost object is. A cost object can be a product, project, or department that you want to track costs for.
Step 2: Learn about direct costs. These are costs that can be directly linked to a specific cost object. For example, the materials used to make a toy are direct costs because you can trace them directly to that toy.
Step 3: Learn about indirect costs. These are costs that cannot be directly linked to a specific cost object. For example, electricity used in a factory is an indirect cost because it supports many products, not just one.
Step 4: Compare the two. Direct costs are easy to identify and assign to a specific item, while indirect costs are shared among multiple items and are harder to assign.
