Home page     Downloads      Privacy policy     Disclaimer & terms of use     Contact us     Advertise with us     About us      Link to us

Home Cost terms concepts and classifications Cost classification for assigning costs to cost objects
 

Cost Classifications for Assigning Costs to Cost Objects (Direct and Indirect Cost):

Learning Objective of this article:

  • Define and explain direct and indirect cost. Give examples of direct and indirect costs.
  • What is the difference between direct and indirect cost.

Definition of Cost Object?

Costs are assigned to objects for a variety of purposes including pricing, profitability studies, and control of spending. A cost object is any thing for which cost data are desired including products, product lines, customers, jobs, and organizational subunits. For the purpose of assigning costs to cost objects, costs are classified as direct cost and indirect cost.

Direct Cost:

Definition and explanation of direct cost:

A direct cost is a cost that can be easily and conveniently traced to the particular cost object under consideration. A cost object is any thing for which cost data is required including products, customers jobs and organizational subunits. For example, if a company is assigning costs to its various regional and national sales offices, then the salary of the sales manager in its Tokyo office would be a direct cost of that office.

Indirect Cost:

Definition and explanation of indirect cost:

An indirect cost is a cost that cannot be easily and conveniently traced to the particular cost object under consideration. For example a soup factory may produce dozens of verities of canned soups. The factory manager's salary would be an indirect cost of a particular verity such as chicken noodle soup. The reason is that the factory manager's salary is not caused by any one variety of soup. To be traced to a cost object such as a particular product, the cost must be caused by the cost object. This salary of manger is called common cost of producing the various products of the factory. A common cost is a cost that is incurred to support a number of costing objects but cannot be traced to them individually. A common cost is a particular type of indirect cost.

A particular cost may be direct or indirect, depending on the cost object. While, in the above example, the soup factory manager's salary is an indirect cost of manufacturing chicken noodle soup, it is a direct cost of the manufacturing division. In the first case, the cost object is the chicken noodle soup product. In the second case, the cost object is the entire manufacturing division.

You may also be interested in other useful articles from "cost terms, concepts and classifications" chapter:

  1. Manufacturing and Non-manufacturing Costs
  2. Product Costs Versus Period Costs
  3. Cost Classifications on Financial Statement
  4. Cost Classifications for Predicting Cost Behavior (Variable and Fixed cost)
  5. Mixed or Semi variable Cost
  6. Cost classification for Assigning Costs to Cost Objects (Direct and Indirect Cost)
  7. Decision making costs - cost classification for decision making
  8. Quality Costs
  9. Further Classification of Labor Costs

 

Downloadable Materials

Learn Accounting Easily With AccountingCoach Pro

View Online or Download all of the materials to Your Computer and Print Immediately

What is Included in Accounting Book
Downloadable Self-Study Materials ( Available in Word Editable Format)
Help in preparation of Online Exams (Available in Word Editable Formatt)
Solved Accounting Problems
Bookkeeping and Financial Statements

Back to Home Page | Back to Cost Terms Concepts and Classifications Page

Managerial Accounting

 
Introduction to Managerial Accounting
Business and Quality Improvement Programs
Cost Terms, Concepts and Classification
Job Order Costing system
Process Costing System
Process Costing System - Addition of Materials & Beginning Inventory
Controlling and Costing Materials
Materials and Inventory Cost Control
By Products and Joint Products Costing
Cost-Volume-Profit-Relationship
Variable Costing System
Activity Based Costing System
Budgeting and Planning
Standard Costing and Variance Analysis
Gross Profit Analysis
Linear Programming Technique
Segment Reporting and Transfer Pricing
Capital Budgeting Decisions
Service Department Costing
Cash Flow statement
Financial statement Analysis
Pricing Products and Services
Managerial Accounting Terms and Definitions
Managerial / Cost Accounting Formulas

Financial Accounting

 
Bookkeeping and Bookkeeping Terms
Accounting Principles and Accounting Equation
Journal
Ledger
Accounting For Bills of Exchange
Subdivision of Journal
Final Accounts
Capital and Revenue Items
Single Entry System/Accounting From Incomplete Records
Accounting For Non-Trading Concerns
Accounting for Consignment / Consignment Accounts
Accounting for Joint Ventures
Accounting for Depreciation

About us !

 
Also see formula of gross margin ratio method with financial analysis, balance sheet and income statement analysis tutorials for free download on Accounting4Management.com.Accounting students can take help from Video lectures, handouts, helping materials, assignments solution, Online Quizzes, GDB, Past Papers, books and Solved problems. Also learn latest Accounting & management software technology with tips and tricks.

Home page   Download Material   Privacy policy   Disclaimer & terms of use   Contact us   Advertise with us   About us   Useful links   Link to us

Copyrights of all content on this web site are owned by Accounting For Management except where indicated in source or copyright statements. Accounting For Management must be contacted for permission to copy or redistribute any material published on this website.
Copyright 2014 Accounting For Management. All rights reserved.