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  Direct Expenses

Introduction to Direct Expenses

After materials and labour the third element of cost is direct or chargeable expenses. These are expenses that can be suitably allocated directly to a cost unit. As per to Chartered Institute of Management Accountants, London, costs other than material and wages that are incurred for a particular product or saleable services is known as direct expenses. Instances are:

(a) Cost of hiring unique machinery or plant.

(b) Cost of special patterns, moulds and designs.

(c) Fees paid to surveyors, architects and other consultants.

(d) Cost of conveyance and transport to the site of the job or operation..

(e) Cost of royalties and patents.

(f) Cost of defective work example where various trial castings are essential before an suitable one is obtained. The cost of such type of castings shall be occupied as a direct expense.

(g) Sub-contracting expenses.

Characteristics of Direct Expenses

1. A significant feature of direct expenses is that its utility is completed in a single production of a single work order. In case the expense's utility can be comprehensive to a number of work orders, it will be referred as an indirect expense.

2. Direct expenses are a piece of direct cost or prime costs of a product or service.

3. Allocation of direct expenses to cost centers (services or products etc.) is complete. There is direct charge and the question of sharing out does not get arise.

Whether an expense should be considered as a indirect expense or an direct expense relies upon the conditions as also the nature of business. Sometimes, convenience is also one of the factors that might be adopted through managements to decide whether an expense be treated like a direct one or like an indirect one. Last but not the least, the quantum of expenditure might also be referred while classifying an item of expense like direct or otherwise.

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