Direct cost: A cost indicates the payment of cash or the obligation to pay the cash in the future period for the generation of revenue or the service performed. A direct cost is the cost which is directly involved in the process of production. For example: The cost of plastic is the direct material for manufacturing a bottle. Indirect cost: An indirect cost is the cost which is indirectly involved in the process of production. For example: The salary of supervisor of a manufacturing business cannot be traced even though the supervisor contributes for the production. To classify: Each cost as either direct cost or indirect cost.

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Chapter 1, Problem 7E

To determine

Direct cost:

A cost indicates the payment of cash or the obligation to pay the cash in the future period for the generation of revenue or the service performed. A direct cost is the cost which is directly involved in the process of production. For example: The cost of plastic is the direct material for manufacturing a bottle.

Indirect cost:

An indirect cost is the cost which is indirectly involved in the process of production. For example: The salary of supervisor of a manufacturing business cannot be traced even though the supervisor contributes for the production.

To classify: Each cost as either direct cost or indirect cost.

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