Direct Expenses

Definition and Explanation

Expenses which are incurred to manufacture or purchase goods and to bring them into saleable condition are called direct expenses. Direct expenses become the part of cost of the goods manufactured or purchased.

These are the costs other than materials and wages, which are incurred for a specific product and
without which the production of that specific product would not be possible.

Example

The example can be given of royalties paid to an author of a book which can neither be described as direct material nor direct labor yet an author’s efforts are essential for production of the book. Similarly, a company may acquire rights to manufacture a product whose patent or trademark rights are held by another company and agree to pay a small fee or royalty for using such trademark or formula for production.

Such payments also fall within the meaning of direct expenses. However, in actual practice, there are very few items that come within this definition and generally, the heading Direct Expenses is ignored in preparation of accounting statements

List of Direct Expenses

 

Purchases Carriage Carriage In
Carriage Inwards Carriage on Purchases Transportation Inwards
Cartage Freight Railway Charges
Insurance in Transit Packing Charges Landing and Wharf charges
Dock Charges Clearing Charges Import Duty
Excise Duty Custom Duty Octroi Duty
wages Wages and Salaries Manufacturing Wages
Wages Productive Factory Wages Manufacturing Expenses
Warehouse Charges Factory Rent Factory Electricity
Factory Light Factory Lighting and Heating Expenses Factory Insurance
Factory Rates Motive Power
1. Gas
2. Fuel
3. Power
4. Coal
5. Coke
Consumable Stores:
1. Lubricating Oil
2. Grease
3. Cotton Waste
Raw Material
1. Tallow
2. Cotton Seeds
3. Oil Seeds
4. Jute
Royalty
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