Why is it necessary to distinguish between direct and indirect costs?

Answer 1

You need to do it to have a good costing of products.

1. Direct Cost has got a one to one relationship with production.It increases/decreases proportionately with increase/decrease in production, where as indirect cost are rather fixed cost upto a level of production.

2.Direct costs are normally not controllable , its determined by the production, where as indirect costs can be controlled by management.

Answer 2

I work in Risk Management and we always consider direct and direct costs of accidents. Generally, direct costs are more easy to quantify and predict. Indirect costs are usually greater than direct costs because they are not easily controlled and often unpredictable.

For example: Direct costs of a car accident would be repairs to the vehicle, medical bills for injuries, property damage, etc. Indirect costs would include legal fees, increased insurance premiums, costs associated with the loss of use of the vehicle, lost time and production.

Answer 3

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