Direct and Indirect Costs

... Element 6.3 Task 2 Page 1 Direct costs An organisation can apportion the costs incurred in the production of products or services in either a direct or an indirect manner. The direct costs can be defined as being the amount materials actually cost plus any other directly linked costs, such as labour. (for Quirk, materials, electricity, labour employee and management, machine depreciation) Production materials, machine or assembly wages 1. Labour and wages - the cost of obtaining, training and retaining labour is a significantly high cost which must be allocated to each unit of production. There are many legal obligations as well as social and welfare considerations, which add to this high costs total. In order to work out the exact labour and wages costs to be attributed to each unit of production, an organisation must take a careful study of the production process and allocate the appropriate expenses. If, for example, an individual earns £10

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