Question

List the two types of direct cost.

Answer 1

Direct cost is the cost directly attributable to the production of the product of an entity, ie., the cost goes directly into the product. This is one of the cost of the product. Direct cost may consist of direct material, direct labour, direct expenses.

The Direct cost may be divided into two possible kinds that are, i) Variable direct cost, and ii) Fixed direct cost.

Variable direct cost is the cost increases with the size of production, the cost per unit of variable direct cost is constant. For an example material cost per unit is constant but when size of ordering units increases then amount of variable direct cost is also increases.

In other hand Fixed direct cost is constant up to 100% capacity, the cost per unit of fixed direct cost varies but total amount of fixed direct cost is constat with in 100% capacity. For an example the direct labour cost might be a fixed direct cost.