Direct Expenses

A: Direct Expenses are costs that can be directly traced to a specific product or service unit, such as: direct raw materials, direct labor, and direct manufacturing overhead (factory electricity, factory rent, machine maintenance). They are charged to production or service cost.

A: Direct expenses can be directly traced to a product unit (e.g., wood used to make a chair). Indirect expenses cannot be directly traced and are allocated to products based on a certain ratio (e.g., production supervisor salaries, factory depreciation, administrative expenses).