Direct Expense

Posted in Finance, Accounting and Economics Terms, Total Reads: 1232

Definition: Direct Expense

Total Expenses are classified into Direct and Indirect expenses. In accounting terms, direct expenses are those which vary directly with the volume of the goods or the cost object. It is listed under the head ‘Cost of Goods Sold’ in an Income Statement. It includes all expenses which are related to the production and purchase of goods.

The main components of Direct Expenses are:

  • Raw Materials used to produce the goods
  • Labour wages which is billable to a client on an hourly basis
  • Freight costs incurred in transportation of goods to and from the manufacturing area
  • Factory Expenses incurred during the production
  • Fuel and oil cost
  • Payroll taxes and commissions related to the sales of goods and services
  • Factory Rent
  • Carriage Inwards (Shipping and Handling Costs)
  • Import Duty
  • Excise Duty

Expenses which are not directly related to the main activity of the business are classified under indirect expenses-example, Research & Development, Facility Rent, Salaried Compensation etc.

Hence, this concludes the definition of Direct Expense along with its overview.

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