Direct Vs Indirect Costs Explained

We are continuing our Cost Accounting Series today by discussing direct vs indirect costs. (#directVsIndirectCosts) Direct Costs are easy to explain. They are the costs directly linked to producing a product or service. Where indirect costs (#indirectCosts) cannot be directly linked to the product or service. An example would be a car manufacturer that produces several models at one location. The rent for the building needs to be addressed as a cost. Since this cost (Rent) cannot be directly linked it needs to be split to cover each car being manufacturer at this location. Other indirect costs are insurance, headquarter employees, management,and utilities. Now direct costs are materials, labor to produce the product or provide the service. As an entrepreneur, you need to understand how these costs are accounted for in your business. If you do not understand the costs in your business have your CPA explain them to you. If your CPA is not educating you then you need to find a NEW CPA!!