Direct cost and indirect cost
Fiche de lecture : Direct cost and indirect cost. Recherche parmi 298 000+ dissertationsPar razbonbon • 17 Septembre 2019 • Fiche de lecture • 344 Mots (2 Pages) • 514 Vues
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DIRECT AND INDIRECT
COST
Presented by: Andriantsoa RAZAFINDRAKOTO
Cost is defined as the resources consumed to[pic 2]
accomplish a specified objective‖.
There is a system, which is called Cost Accounting, used to record, summarize and report cost information.
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COST
• Cost accounting helps management in planning and controlling costs relating to both production and distribution activities.
• Whereas management accounting reports attempt to fill the information needs of managers with respect to a specific problem, situation, or decision.
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CLASSIFICATION OF COST
Cost classification is the process of grouping costs according to their common characteristics.
A suitable classification of costs is very helpful in identifying a given cost with cost centers or cost units.
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CLASSIFICATION OF COST
The classification of costs can be done in the following ways:
1. By Nature of Element
2. By Functions
3. By Traceability
4. By Variability
5. …
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DIRECT COST AND INDIRECT COST
• Total cost is divided into direct costs and indirect costs
• Direct costs are those costs which are incurred for and may be easily traced to a particular cost center or cost unit. The common examples of direct costs are materials used and labor employed in manufacturing an article or in a particular process of production.
• Indirect costs are those costs which are incurred for the benefit of a number of cost centers or cost units and cannot be conveniently identified with a particular cost center or cost unit. Examples of indirect costs include rent of building, management salaries, machinery depreciation, etc
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DIRECT COST AND INDIRECT COST
The distinction between direct and indirect cost is essential because the direct costs of a product or activity can be accurately identified with the cost object while the indirect costs have to be apportioned on the basis of certain assumptions about their incidence.
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