Direct expense
A direct expense is a cost other than direct materials and direct labour that can be traced economically to a specific cost object. Examples include a royalty charged per unit of a named product or specialist equipment hired solely for a job. It forms part of prime cost. A cost’s legal description as a fee, rental or royalty does not decide classification without knowing what it supports.
Worked example
A manufacturer pays a $3 royalty for each of 200 units of product A. The $600 is a direct expense of A.
Common mistake
A shared factory rental is normally overhead, even though a particular job could not be made without a factory.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |
