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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

QualificationExamRelationshipPeriod
ACCA MA Direct September 2026–June 2027
FIA FMA Direct September 2026–June 2027