Direct costs, in accounting, are costs directly accountable to a
cost object (such as a particular project, facility, function, or product).
The equivalent nomenclature in economics is specific cost.
Direct costs may be either
fixed or
variable, but typically comprise materials, labour, and specific expenses such as, e.g. a
royalty payment
A royalty payment is a payment made by one party to another that owns a particular asset, for the right to ongoing use of that asset. Royalties are typically agreed upon as a percentage of gross or net revenues derived from the use of an asset or ...
to a
patent holder for a given production process, all directly attributable to a cost object. Thus by industry:
*In construction, the costs of materials, labor, equipment, etc., and all directly involved efforts or expenses for the cost object are direct costs.
*In manufacturing or other non-construction industries, the portion of operating costs that is directly assignable to a specific product or process is a direct cost.
[''Standard AACE International Recommended Practice No. 10S-90 COST ENGINEERING TERMINOLOGY TCM Framework: General Reference'', Association for the Advancement of Cost Engineering International, 2010, Pg 35]
*In
project management
Project management is the process of supervising the work of a Project team, team to achieve all project goals within the given constraints. This information is usually described in project initiation documentation, project documentation, crea ...
, direct costs are those for activities or services that benefit specific projects, for example salaries for project staff and materials required for a particular project. Because these activities are easily traced to projects, their costs are usually charged to projects on an item-by-item basis.
By contrast,
indirect costs are costs not directly accountable to a cost object (such as a particular project, facility, function or product). These include administration, personnel and security costs.
A
joint cost is a cost incurred in the production or delivery of multiple products or product lines. For instance, in
civil aviation
Civil aviation is one of two major categories of flying, representing all non-military and non-state aviation, which can be both private and commercial. Most countries in the world are members of the International Civil Aviation Organization and ...
, substantial costs of a flight (pilots, fuel, wear and tear on the plane, landing and takeoff fees) are a joint cost between carrying passengers and carrying freight, and underlie
economies of scope across passenger and freight services. By contrast, some costs are specific to the services, for instance, meals and flight attendants are specific costs of carrying passengers.
References
Accounting
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