What is Direct Cost?

Direct cost is any expenditure that a business or organization will undertake that is completely attributed to a cost object, be it goods or services. This could include resources and materials, processes, individuals (such as employee salaries), or direct expenses (such as royalties to a patent holder). A direct cost requires a specific cost object in the organization that it can be attributed to, such as a particular project or product. They do not necessarily have to be fixed amounts, though. A direct cost can be attributed to an object with a fluctuating price (such as oil) in which case, it's known as a variable direct cost.

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