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I am little bit confused between direct expenses and indirect expenses.. our shirt button is example of indirect expenses?. Sir John Could you please help me? kindly explain the difference in easy words with 2,3 examples… 🙁
Direct expenses are those that can be measured specifically for each cost unit. So if the cost unit is a shirt, then we can measure directly the cost of the buttons for each shirt because we know how many buttons there are.
Indirect expenses are those that can’t be measured for each unit. For example, we might make the shirts in a factory that we rent. The rent is a cost of production but we can’t measure how much of the rent is for each shirt – therefore it is an indirect cost (or an overhead).You should watch the free lecture on cost classification and behaviour for more examples.
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