Direct Cost

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.