Direct or Indirect Cost?

Direct or Indirect Cost?

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How do Companies in general identifies costs as a direct and indirect cost? 

Although I am aware of the difference between direct and indirect, but the practice overall varies in industry. Some articles states that Production Manager, Maintenance Officer, Procurement officer, Supervisor and Quality Control technician can be included as part of direct labour cost (I believe in this case the "Cost Object" is the Factory) whereas in others only Labour involved in actually making the product are classified as direct labour cost.

How about in the case where assuming if the production is fully automated will there be any direct labour cost involved?

Any opinion on this matter will be highly appreciated. Thanks in advance

Replies (5)

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By The Innkeeper
12th Jan 2015 07:00

is this

a homework question?

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By wanted45
13th Jan 2015 02:24

kinda

A research project on product costing.

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By The Innkeeper
13th Jan 2015 06:53

you will find

on this forum that people will be willing to help with this sort of post as long as you are upfront about it Sorry but I cannot help further since I a tax practitioner.

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By tom123
13th Jan 2015 08:53

Broadly it is whatever suits and is useful to you.

There are no hard and fast rules. Direct costs generally move in line with increasing production level - such as material cost or direct labour.

Indirect costs, such as supervision, are not assumed to increase with production level.

Of course these days direct labour tends to be salaried, and a lower proportion of production cost given the increase in mechanisation.

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By wanted45
16th Jan 2015 03:31

Assuming

@The Innkeeper; I'll keep that in mind. Thanks

@tom123; Hi & thanks for the info.

 Assuming that the production process is all automated, and the only labour which will increase with the production level are "General Workers" whose primary job is to look at the Mechanical & Electrical works. But since these workers are not involved in the making of the product, I believe they will not be classified as a direct labour cost? 

Also if I go through with my above logic, employees working at the Lab responsible for regularly taking samples to check the quality of the product (including employees working in the Quality Control Department) will also not be classified as a direct labour cost? And also what about employees responsible for the control systems?

Your opinion will be much appreciated. I would like get a better understanding of the "direct & indirect costs" (especially in case of Labour) before I write something on it.

Thank you

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