Home Management Concepts The Difference Between Direct and Indirect Costs

The Difference Between Direct and Indirect Costs

Understand the difference between direct and indirect costs

Did you know that knowledge and correct application of accounting principles can improve the management of your company's numbers, enabling a more accurate analysis of financial health and subsidizing decision-making? Know in this article the concepts of direct and indirect costs and know how to classify them properly. Of breaking, know a great tool that Luz.vc prepared especially for your company.

See also: Complete Pricing Guide

Direct Costs

Os direct costs can be identified as those that are objectively linked to a given product. They must be perfectly measurable in order to be included directly in the calculation of production. Given the ease of association with products, direct costs do not need to be subject to apportionment criteria to be properly allocated.

In the vast majority of cases, the direct costs refer to materials (packaging, raw material, components) and direct labor, which is applied directly in the manufacture or finishing of products or, where appropriate, in the provision services. The trend is the ever-increasing replacement of direct labor by machinery and equipment. In addition to employee salaries, direct labor costs also include social charges and holiday and thirteenth salary provisions.

Os direct costs are included directly in the calculation of products.

Indirect costs

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In turn, the indirect costs, as the term itself suggests, are not directly identified in products and services. Consequently, costs falling within this category can not be related to specific products, and there is a need to establish apportionment criteria to be properly allocated.

A good example is indirect labor, related to activities carried out in auxiliary sectors of the company or by service providers, such as surveillance, maintenance of equipment, cleaning and the like. The materials used in these activities, such as lubricants and screws, are also classified as indirect costs. Depreciation of equipment, rents and insurance are also examples of overhead costs.

The importance of differentiating direct costs from indirect costs

The accounting control of a company and its planning can be improved significantly if the costs are classified in the correct way. The pricing of goods sold, for example, can be defined more evenly when only costs specifically related to products are taken into account. Another advantage is more accurate planning of future expenses and eventual relocations. Indirect costs, which can not be allocated to a specific product, are prorated between cost centers.

The fundamentals of direct and indirect costs are applied in the various costing methods, which are used to obtain important information and subsidize the planning and control of costs of the companies. In order to assist in the pricing process of its company's products, Luz.vc created the Product Pricing Worksheet.


10 Accounting Worksheets and Counters in Excel

Divided into six tabs, the spreadsheet allows you to set prices based on information on taxes, costs and investments, and offers the possibility of competitive analysis in order to make adjustments that guarantee the competitiveness of the price to be charged.

Meet Product Pricing Worksheet and do not lose more money by mischaracterizing the price of your products.

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  1. Could you please indicate the bibliography from which the above explanation was derived?

  2. Hi Larissa, if you work as a CLT, yes, you will lose some rights when leaving the CLT scheme for MEI, where you will be hired as a PJ

  3. I work in a company and would like to do mei, lose some right? besides being able to lose the pencil for exceeding the minimum wages 2?
    can i hire my mother works with a formal contract as a maid, but does not receive a pencil, I would like to put her as my maid in order to receive, is there any easier way?

  4. Hi Sérgio, not necessarily, the answer will depend on how your business works.

    If this maintenance occurs every month, regardless of anything, yes, it would be a fixed cost. If it depends on shooting, etc., I would be more inclined to place it as a direct cost. About corrective / emergency maintenance - yes, I agree with you

  5. Good morning Rafael, great text!
    One question, regarding maintenance cost:
    Scheduled maintenance (periodic, preventive, predictive) would be an indirect and fixed cost.
    Unplanned maintenance (corrective, emergency) would be a direct and variable cost.
    Is correct?

  6. Hi good morning,
    after identifying those that are direct and indirect. has a formula.

    How do I do that?

  7. goodnight
    great clarification on direct and indirect costs, because we deal with many daily expenses we just remember the burden of taxes we experience in the country.

  8. Thanks for the compliment Fabio. If there are other topics that you have interest and that we have not yet spoken here on the blog is just saying. Hugs


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