What are Indirect and Direct Costs?

Direct Costs

Direct Labour or Direct Materials are labour and materials directly identified to a product.

  • Direct Material costs are raw materials used in production. An example is timber used to make a table.
  • Direct Labour costs are labour costs that are directly attributable to a product or service.

Indirect Costs

Indirect Costs are overheads that are shared with other jobs.

  • Indirect costs or Overhead costs are those costs that are essential to production or service delivery but cannot be isolated and attributable to a particular job or service.

Examples are reception or administration staff supporting professionals like lawyers or doctors who are dealing with clients or jobs, rent or rates.

The total cost of producing a product, doing a job or performing a service is all of the direct and indirect costs.





Practice with this accounting game classifying costs as direct and indirect.

Move the to the correct column.

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June 3, 2019
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