Direct and Indirect Costs :: Economics

engage and In localize CostsDirect constitutes============An organisation can apportion the embody incurred in the doing ofproducts or services in either a direct or an indirect manner. Thedirect be can be defined as being the amount genuines actuallycost plus any another(prenominal) directly linked costs, such as jab.(for Quirk, materials, electricity, labour employee and management,machine depreciation) output materials, machine or assembly wages===============================================1. Labour and wages the cost of obtaining, training and retaininglabour is a significantly uplifted cost which essential(prenominal) be portiond to eachunit of deed. There atomic number 18 many heavy obligations as well as socialand welfargon considerations, which add to this high costs total.In order to work out the exact labour and wages costs to be attributedto each unit of production, an organisation must take a careful studyof the production process and allocate the appropr iate expenses. If,for example, an individual earns 10 per hour and processes 10 unitsduring that hour, then 1 of direct costs may simply be added to eachunit. Unfortunately, things are not that simple.There are many other individual costs which an organisation must bearin the employment of individuals. These may complicate employersnational insurance contributions, pension payments and insurancepolicy payments. In most organisations, labour and wage costs accountfor the majority of direct costs.2. Materials the costs of materials differ according to the sectorin which an organisation operates. As organisation that operates inthe primary sector has comparatively low material costs. At the otherend of the scale, in the tertiary sector, the costs of terminate goodsto a retailer for example, will be extremely high. The principalelements that bear upon the costs of materials should be included in theorganisations overall budgetary controls. In addition, anorganisation must also consi der the cost of materials in congress tomarket demands, as these will inevitably cause periodic fluctuationsin material costs.Only those materials that are actually used in the production of aproduct or service should be considered part of the cost of thatproduct or service.Task 2 Page 2 new(prenominal) consumables used by the organisation are classed as indirectcosts and are considered under separate budgets.Indirect costs ==================(for Quirk, rent/rates, gross sales/ marketing/ insurance/ non-productiondepreciation management salaries)Indirect costs are costs incurred in the running of an organisationthat cannot be easily doled out to the production process.