Direct Costing

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Definition: Direct Costing

It is the method of accounting the costs. There are 2 types of manufacturing overheads- Fixed and Variable.

In direct costing the Variable Overheads are allocated to the product cost and taken before calculating the “GROSS PROFIT” (Trading/manufacturing profit). But the Fixed Overheads are treated as a period expense and charged as an operating expense to the profit and loss account.

So, under direct costing, expenses such as material, labour and variable overhead expenses are charged directly to the product and other expenses which are difficult to relate to the product are charged as an indirect expense.

 

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