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Q) Evaluate direct cost from indirect cost, and why is this not necessary in process-costing environments?

Direct cost: These are the costs which are attributable to the manufacturing of the particular goods or services. This is one of the two common branches of product costing in the accounting for the production of the goods. These direct costs are directly traced to the product, direct costs do not only one cost object which are related to the amenities which are being rented. As direct costs could be particularly advantages only one cost object. Product which are not direct costs are not allocated and they totally relied upon the cost drivers. Basically this can be rightly said that the direct costs do not fixed in nature, as the unit costs might changes over the time or based upon the quantity which is being used. While on the other hand, this can be rightly said that the Indirect costs are those which are like depreciation or the administrative expenses that are highly difficult to the assign to the particular product and henceforth are adopted to be the indirect costs. Indirect costs are those costs which are implemented by the multiple tasks, and which can’t henceforth be assigned to the particular costs objects. While on the other hand, indirect costs are not directly determined to the single cost but elaborated with two or main cost objectives. This might not apportioned to the final cost objectives if other costs are occurred for the similar aim such as circumstances which have been covered as the direct cost of that or any other final cost objective.

REFERENCES

  • Hex, N., Bartlett, C., Wright, D., Taylor, M. and Varley, D., 2012. Estimating the current and future costs of Type 1 and Type 2 diabetes in the UK, including direct health costs and indirect societal and productivity costs. Diabetic Medicine/ 29(7) pp.855-862.