6 Examples of direct costs

The processes within the chain of production of goods and services They have many elements that go into each one of them. These range from commercial and administrative tasks, to manufacturing and distribution, and each of these areas generates an enormous amount of costs.

All people who have businesses, or are in the process of entrepreneurship, know that the most important thing is to win, but for this the company must maintain itself and this is achieved by making investments that translate into direct costs included within the general accounting plan.

In this post we will analyze and give you some examples of direct costs so you can better understand how they can affect the company.

What are direct costs?

They are a type of cost that intervenes, directly, within the process of production of goods and services of a company. These are the expenses that must be made to be able to carry out the different tasks of the company.

These are generally referred to a specific action, such as material costs. implemented for the creation of a product, but the labor involved is excluded from this finished.

How are direct costs classified?

The classification of direct costs depends on the decade one of the processes that are carried out, some are They are present in practically any company, and on the contrary, others are specific to each sector productive.

Costs as such are not always easy to categorize, so we leave you here some examples of direct costs according to the company's line of business, in a way that is easy to identify for any company.

Direct costs of a civil work

Here you can include all those expenses that are related to construction, that is, direct labor within a company:

• The pavement arrangements of the streets in front of own businesses.
• The purchase of land for construction.
• The costs related to the construction of a property.
• Services for sanitary issues such as storm sewers.
• The management and control of sedimentation and erosion.
• Linear basic payments like water, gas and electricity.
• Leveling carried out on purchased and acquired land.

Direct costs of occupational accidents

Although they are not frequent in all sectors, mainly civil works, they are an important part of companies and in which they must invest an adequate amount of money. This type of economic expense is considered a double blow, since it generates losses for the worker who has suffered the accident as well as for the company itself.

Here the insurers are taken into account, therefore, they are recoverable, some of them are:

• The transfer of the affected person from the scene of the incident to a health facility.
• The medical insurance offered during the hiring of each of the employees.
• Economic compensation for those workers who have suffered an accident within the company or carrying out activities that are directly related to it.
• Rehabilitation and prosthesis expenses if necessary.

Keys to calculate a direct cost

Direct costs can be difficult to distinguish within a project, an easy way to achieve this is by putting these factors into practice:

• Create a list with all the tasks that are essential to carry out the project.
• Calculate the time it will take to complete each phase of the project.
• Do not leave out the derived costs that exist in the internal and external workforce.
• Don't forget to include all possible losses in the plan.

Examples of a direct cost

These are directly identified with production, and there is no need to previously establish some type of allocation criteria. These can be easily identified either with a particular product, activity or department, here are some simple examples:

1. The raw material used in the production of a service; a company that produces wines needs grapes, these being its greatest raw material, so the quantities that must be obtained are enormous.
2. The training of the company's workers is related to this since it allows having trained employees.
3. All the materials or supplies that are necessary for the production, manufacture or transformation of the products can be considered as a final good. Within the manufacture of bread, the necessary inputs would be each of the necessary ingredients to be able to do so.
4. The compensation of employees who are part of the development of a particular product, such as are the wages of those who dedicate their entire working day to the production of the same product.
5. The value of the commission paid to sellers for each of the sales made.
6. The expenses for the transport of each of the products that are taken from the company to the final consumer.

All companies engaged in the production of goods and services have direct costs, which must be carefully monitored by the accounting part of the company in order to maintain total control over them, in such a way that the optimization of the production chain is possible.