What is a direct cost?

Definition of Direct cost

Direct costs are directly associated with the goods or services of a business. They are not the same as indirect costs.

Direct costs are also referred to as Cost of Goods Sold or Cost of Sales

Examples of direct costs

• Inventory or raw materials

• Labour for manufacturing of goods or delivering services

• Freight

• Warehousing

• Workshop and factory expenses

Why do direct costs matter?

It is important to know what the effect will be on the total costs of the company should sales increase. Knowing the direct costs is the first step to calculating your profit margin.

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