CAT / FIA FMA Syllabus C. Cost Accounting Techniques - Direct and indirect expenses for overheads - Notes ^{17 / 23}

Direct expenses

- are expenses that can be directly identified with a specific cost unit or cost centre

e.g. the hire of tools and equipment used directly in producing a particular product. 

Direct expenses are part of the prime cost of a product.

Indirect Expenses

1. Production overheads
    
   = indirect materials + indirect labour + indirect expenses

   -  are indirect expenses which cannot be directly identified with a specific cost unit or cost centre

   - are incurred inside the factory, during the production process 

   e.g. factory rent, factory light and heat.

2. Non-production overheads

   - are indirect expenses that are incurred after a product leaves the factory (are incurred outside the factory)

   for example, administration overhead, selling and distribution overhead