Direct Cost

Direct costs are expenses that can be directly tied to the production of specific goods or services. These costs typically include raw materials, labor, and other expenses directly involved in creating a product. Unlike indirect costs, which are shared across multiple projects, direct costs are easily traceable to a single item or service. For businesses, understanding direct costs is essential for pricing products correctly and managing profitability. Direct costs are often used in calculating the cost of goods sold (COGS), an important metric for financial analysis.

Example

The cost of fabric and labor to make a shirt are direct costs for a clothing manufacturer.