Question

Explain the difference between direct costs, fixed costs, and general expenses. Give two examples of each.

Answer 1

Direct costs are those costs that are incurred by a particular project. Costs for training staff or purchase of new equipment for project are examples of direct costs.

Fixed costs are those costs which do not change from month to month, throughout the life of the project. These are usually purchase of assets like land, building etc.

General expenses refer to the expenditures related to the day to day operations of a business. They pertain to operational expenses rather than to expenses that can be directly related to the production of goods. Eg: managerial salaries, insurance, rent , utilities etc.