What is direct work and indirect work

The difference between direct and indirect costs

Did you know that knowing and correctly applying accounting principles can improve the management of your company's numbers, allowing for more detailed analysis of financial health and subsidized decision-making? In this article, you will understand the concepts of direct and indirect costs and how to properly classify them. Interrupting, I know a great tool that Luz.vc has specially prepared for your company.

See also: Complete price guide

Direct costs

Os direct costs can be identified as those that are objectively related to a particular product. They have to be perfectly measurable in order to be included directly in the calculation of production. Given the ease with which products are linked, direct costs do not need to be subject to the allocation criteria to be properly allocated.

In most cases, the direct costs relate to materials (packaging, raw materials, components) and direct labor directly applied in the manufacture or refinement of products or, where appropriate, in the provision of services. The trend is the ever increasing replacement of labor with machines and devices. In addition to the salaries of the employees, the non-wage costs also include the social security contributions and vacation regulations as well as the thirteenth provision for wages.

Os direct costs are included directly in the calculation of the products.

Indirect costs

Sequentially Overheadas the term itself suggests, are not directly identified in products and services. As a result, costs falling into this category cannot be associated with specific products and allocation criteria need to be established in order for them to be properly allocated.

A good example is indirect work in connection with activities carried out in auxiliary areas of the company or by service providers, such as monitoring, maintenance of equipment, cleaning and the like. The materials used in these activities, such as lubricants and screws, are also classified as indirect costs. Equipment depreciation, rentals, and insurance are also examples of overhead costs.

The importance of distinguishing direct costs from indirect costs

A company's accounting control and planning can be vastly improved if costs are properly classified. For example, the prices of goods sold can be defined more evenly if only product-specific costs are taken into account. Another advantage is a more precise planning of future expenses and possible relocations. Indirect costs that cannot be assigned to a specific product are allocated to cost centers.

The basics of direct and indirect costs are applied in the various calculation methods that are used to obtain vital information and to subsidize the planning and control of costs for companies. To help with pricing his company's products, Luz.vc has the Product Calculation Worksheet.

 

Divided into six tabs, the spreadsheet allows prices of information to be practiced in advance, relating to taxes, costs and investments, the possibility of a competitive analysis to make adjustments to ensure the competitiveness of the price.

Hit Product Calculation Worksheet and stop losing money by misrepresenting the price of your products.

Administrators and tourism researchers, passionate about the opportunities Excel offers to managers, entrepreneurs and students. He is Managing Partner of the Spreadsheet division of LUZ - Spreadsheets (luz.vc) and responsible for developing spreadsheets with a business and personal focus on his website. He also teaches online Excel courses (cursos.luz.vc) and is happy to help thousands of planners through the LUZ forum and blog.