Major differences between direct costs and indirect costs are as follows:
1. Meaning
Direct Cost: Costs associated directly with the production of specific products and can be easily identifiable.
Indirect Cost: Cost associated in the production process but cannot easily be identified.
2. Traceable
Direct Cost: It can be easily traced and computed.
Indirect Cost: It cannot be identified and traced easily.
3. Per Unit Cost
Direct Cost: It can be calculated and converted into per unit cost of the product.
Indirect Cost: It cannot be converted into per unit cost.
4. Aggregate
Direct Cost: Aggregate or total direct cost is called prime cost.
Indirect Cost: Aggregate of total indirect cost is known as overheads.
5. Vary
Direct Cost: It varies or change proportionately according to the change in output.
Indirect Cost: It does not varies proportionately according to the output level.
6 Examples
Direct Cost: Direct materials cost, direct labor cost and other direct expenses.
Indirect Cost: Indirect materials cost, indirect labor cost and other indirect expenses.