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urgent help

(Guest)

Hi....please tell me the differnce between Direct material and Indirect material; Direct labour and Indirect labour ; Direct expenses and Indirect expenses . Please explain each of them with suitable eaxmples. Also explain Cost centres And Cost units with suitable examples...........

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Ashish M (Chartered Accountant) (2731 Points)
Replied 18 March 2010

Dear anuj,

the following explanation may help u.

Direct material is one which can directly be attributed to the output units. For example. For producing a wooden chair, a certain square meter of slab of wood is required. Its direct material. B'coz requirement of total sqare meter of slab can be found out by multiplying no. of units into sqare meter of wooden slab required per chair.

Similarly indirect material is something which is to be used in the input as a whole but can't be attributed to particular unit. For example, in the above example. the amount of fevicol required to make a certain units of chair can be found. But per fevicol usage of per unit of chair can't be calculated.

Similarly direct and indirect expenses can be taken to mean accordingly for expenses other than material. Example labour required per unit of chair is direct exp. and labour that is incurred as a whole of output without regard to the per unit output of chair is indirect expense.

Cost center is the one or the dept. which has to incur cost for the company. for example, Factory unit or purchase dept. These dept. has to incur cost. so these are cost centers. These centers will work efficiently when they will incur minimum cost. In similar way u can understand Profit center as the unit or dept. which has to earn profit for the company. For example. Sales dept. is a profit dept. bcoz' it has to earn profit to the company.!!!!!!!!

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