Direct and Indirect Expenses: Differences

Difference Between Direct and Indirect expenses

Difference Between Direct and Indirect expenses: –

To know the actual cost of production we classified expenses into two subcategories these are Direct and Indirect expenses or cost. and to measure the gross profit on the sale of goods and services. All expenses incurred on the purchase of goods(in the trading business model) or the production of goods(in manufacture business model) are known as direct expenses or cost but all other expenses are included in the indirect expenses or cost. These are further explained as follows.

Meaning of Direct Expenses: –

The expenses related to the production process or purchase of goods are called direct expenses. In other words, all expenses which have a direct relation with the process of production or goods and purchase of goods. These expenses are separated to calculated the Gross profit of the business in a particular financial year.

These expenses are differed as per the model of business. We are further classified them into two major subcategories explained as follows: –

  1. For the Manufacturing Business model
  2. For the Trading Business Model

List of direct Expenses: –

  1. In Manufacturing Concern:
    1. Purchase of Raw Material
    2. The wages paid to the factory worker
    3. Factory Staff salary
    4. Factory Lighting and Heating
    5. Freight or carriage inwards
    6. Octori on the Purchase of Raw Material
    7. Factory rent
    8. Factory utilities
    9. Factory building insurance
    10. Depreciation on Plant and Machine
    11. Equipment setup costs
    12. Equipment Repair and maintenance
    13. Factory supplies
    14. Factory small tools and die charged to expense
    15. Import Duty
    16. Custom Duty
    17. Dock Charges
    18. Fuel, Gas and Water
    19. Royalty
    20. Packaging Material or charges
    21. Commission on Purchase
  2. In trading Concern
    1. Purchase of Goods
    2. Freight or carriage inwards
    3. Octori on the Purchase of goods
    4. Unloading of goods
    5. Import Duty
    6. Custom Duty
    7. Dock Charges
    8. Packaging Material or charges
    9. Commission on Purchase

Meaning of Indirect Expenses: –

The expenses not related to the production process or purchase of goods are called indirect expenses. In other words, all expenses other than direct expenses are known as indirect expenses. These expenses are separated to calculated the Net profit of the business in a particular financial year.

List of Indirect Expenses: –

  1. Salary of the office employees
  2. Electricity Bill
  3. Rent
  4. Taxes
  5. Freight or carriage outwards
  6. Travelling Expenses
  7. Printing and Stationery
  8. Postage and Telegram
  9. Commission paid on Sales
  10. Publicity and Expenses
  11. Accounting and Auditing Fee
  12. Legal fee
  13. Office Expenses
  14. Repair and maintenance
  15. Staff Welfare
  16. Group Insurance of employee
  17. Depreciation
  18. Bad debts
  19. Office building insurance
  20. Mobile and Telephone Expenses
  21. Interest
  22. Miscellaneous Expenses

Chart of Difference between Direct and Indirect expenses: –

Basis of Difference

Direct Expenses

Indirect Expenses

Meaning
The expenses related to the production process or purchase of goods. The expenses not related to the production process or purchase of goods.
Help in Calculation of 
Gross Profit Net Profit
Included in the cost of Production
These Expenses are included in the cost of goods sold or produce These Expenses are not included in the cost of goods sold or produce
Financial Statement 
Posted in the trading account Posted in the Profit and loss account
Related to 
These expenses are related to Factory. These expenses are related to office.
Need 
Calculate of these expenses are needed to know the actual cost of production. Calculate of these expenses are needed to know the actual profit for the year.

If you want to Download the chart please download the following image and PDF file: –

Chart of Difference between Direct and Indirect expenses 300x176 - Direct and Indirect Expenses: Differences
Chart of Difference between Direct and Indirect expenses
application pdf - Direct and Indirect Expenses: Differences
Chart of Difference between Direct and Indirect expenses

The conclusion of Difference between Direct and Indirect Expenses: –

These both are the different type of expenses one is related to the production process and second is related to all office and selling process. Both are important for every type of business. Only to calculate the specific performance of the business in accounting all expenses are classified into two subcategories.

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