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Direct vs. indirect

Shivani (Learner) (1881 Points)

23 October 2014

Dear Friends

A very happy diwali to you all

I am among those who ask questions even on Diwali

A very basic question but something which has always confused me

What is the difference between direct and indirect costs?

Repairs to machinery

Repairs to factory building

depreciation of machinery

What are these - direct or indirect?

Please explain the concept.

Thanks

Regards

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11 Replies

srikanth (learning) (28 Points)
Replied 23 October 2014

See shivani if repairs are made to the machinery those expenses are treated as revenue expenditure unless if it affects production (if those expenses are incurred for promoting production treat it as cap exp)

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srikanth (learning) (28 Points)
Replied 23 October 2014

And dep on machinery is a kind of expense BT we don't treat it nd call it as expense because it is a non cash expenditure, we are not paying any cash for such depreciation we are Nly decreasing the value of such asset year by year

Shivani (Learner) (1881 Points)
Replied 23 October 2014

But what are direct and indirect expenses

how to know which expense to treat as direct or indirect?

A person may be just manufacturer, or he may be just a trader or just a service provider or a combination of any.

How to bifurcate expenses into direct and indirect

vaibhav (student) (27 Points)
Replied 23 October 2014

First of all HAPPY DIWALI. :-) Direct Expenses: Expenses connected with purchases of goods are known as direct expenses. For example, freight, insurance, of goods in transit, carriage, wages, custom duty, import duty, octroi duty etc. Without incurring these expenses, it is not possible to bring the goods from the purchase point to the godown of the business. such expenses are collectively known as direct expenses. Indirect Expenses: All expenses other than direct expenses are assumed as indirect expenses. Such expenses have no relationship with purchase of goods. Examples of indirect expenses include rent of building, salaries to employees, legal charges, insurance of building, depreciation, printing charges etc.

Devender Dhiman (Executive Finance) (26 Points)
Replied 23 October 2014

Direct expenses are which can be attributed to a cost object in an economically feasible manner. Indirect exps are which cannot be directly attributed to an economically feasible manner.

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Shivani (Learner) (1881 Points)
Replied 24 October 2014

Dear All

Mr. X is a service provider of say dry cleaning services.

He takes advertising service to advertise his dry cleaning work.

Now will advertisement charges be direct expense or indirect expense?

Regards

Devender Dhiman (Executive Finance) (26 Points)
Replied 25 October 2014

It's then direct expenses.

Shivani (Learner) (1881 Points)
Replied 25 October 2014

Dear Devender Why so? Normally we take advertising as an indirect expense. Why are you taking it as direct expense in this case? Regards

srikanth (learning) (28 Points)
Replied 26 October 2014

Dear shiva Here dry cleaning activity is not related to manufacturing activity, since it is a service and it is directly related to that particular service that is why in this case it is treated as direct expenditure