Direct Cost
Categories: Accounting, Metrics
Well, let’s start like we always do…with the opposite.
Direct costs are the cost of the metal for the engine block Ford is building. It’s the windshield wipers. It’s the glass, the door handles, the paint, the radio, and the 2-gallon cup holder for holding super-sized Slurpees.
Direct.
Build one car. And you have to pay for this stuff. In cash. No ambiguity. These are direct costs of building the car. But what about indirect costs? Well, indirect cost is a different animal. So like…whether you build one car that day or 100, you have to heat the building. At least in January.
That heat is an indirect cost of building the car.
What about the insurance you had to carry? Or the lawyers you employ? Or the leaseback on the giant robot car makers? Or the unpaid obligations into the union pension fund?
All indirect costs.
So yeah…it’s all the stuff you basically have to pay for in order to stay in business (and avoid major lawsuits) so you can continue to pay for all those direct costs that actually go into the making of your product
Just make sure that, when you’re building a car…you don’t install a GPS system that gives, uh…indirections.
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Finance: What is Indirect Cost?0 Views
Finance allah shmoop What is in direct cost All right
Well let's start like we try to always start with
the opposite Direct costs are the cost of the medal
for the engine block for this building direct costs are
the windshield wipers Direct costs are the glass The door
handles the pain the radio and the two gallon cup
holder for holding supersize slurpees Direct build one car and
you have to pay for this stuff in cash No
ambiguity Alright these air direct costs of building the car
But what about indirect costs Well indirect is a totally
different animal So like whether you build one car that
day or one hundred Well you have to heat the
building at least in january in detroit That heat is
an indirect cost of building the car And yes it's
not really Detroit it's pontiac michigan Or wherever But we're
just saying it's cold there What about the insurance he
had to carry for the car company or the lawyers
you employ Or the least back on the giant robot
car makers or the unpaid obligations into the union pension
fund All indirect costs So yeah it's all the stuff
You basically have to pay for in order to stay
in business and avoid major lawsuits So you can continue
to pay for all those direct costs that actually go
into the making of your product Like the direct costs
you can think of as you know kind of things
that produce a gross margin And the indirect costs you
know kind of produce an operating margin Just saying All
right so just make sure that when you're building a
car you don't sell gps system that gives you in 00:01:38.489 --> [endTime] directions See that That would be bad This