Labor and direct materials constitute the majority of direct costs. If your company develops software and needs specific assets, such as purchased frameworks or development applications, those are direct costs. It can also include labor, assuming the labor is specific to the product, department or project.įor example, if an employee is hired to work on a project, either exclusively or for an assigned number of hours, their labor on that project is a direct cost. This category can include software, equipment and raw materials. What are direct costs?ĭirect costs are expenses that a company can easily connect to a specific “cost object,” which may be a product, department or project. Finally, if you ever apply for and receive a grant, there are several rules around the types of indirect costs and the maximum amount you can claim. Additionally, certain costs are tax-deductible, so properly tracking both direct and indirect costs can help you maximize deductions. When you know the true costs involved with producing and providing your goods or services to customers, you can price both competitively and accurately.
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