Question

Explain different components of direct costs.

Answer 1

1. Direct material cost: All material which becomes an integral part of the finished product and which can be conveniently assigned to specific physical units of the finished product is known as direct material or process material. Wood used in making furniture, sugarcane in a sugar mill, raw cotton in a textile mill, crude oil in making diesel are examples of direct material.
2. Direct labour cost: Labour which takes an active and direct part in the production of a particular commodity is known as direct labour. Direct labour costs are specifically and conveniently traceable to specific products. Direct labour is also known as productive or operating labour. Wages paid to carpenters in a furniture workshop are direct labour.
3. Direct expenses: These are the expenses which can be directly, conveniently and wholly allocated to specific cost centres or cost units. Rent paid for hire of a special machine required for a particular contract, cost of defective work incurred in connection with a particular job, fees paid to the architect of a building, etc., are examples of direct expenses. These are also known as chargeable expenses.