The difference between direct and indirect costs.

Carrying out the production of goods, the company has 2 types of costs - direct and indirect. What are they?

What are direct costs?

Under direct it is customary to understand costs that are directly related to the production of goods and are decisive in terms of its cost, or have a pronounced economic connection with the object of production.

The main types of direct costs that characterize most types of production:

  • purchase of raw materials, components that are used for the production of goods by the enterprise;
  • payment of operating costs - utilities, software licenses;
  • salaries of personnel employed in factory lines, compensation to contractors.

What are indirect costs?

Under indirect it is customary to understand costs that are secondary in terms of the cost of goods produced by the enterprise or do not have a pronounced economic connection with the object of production. Such costs can be:

  • payment of courses for the advanced training of employees of factory lines;
  • the cost of repairs in production shops, offices;
  • expenses for advertising, promotion of the manufacturer of goods;
  • payment of interest on corporate loans;
  • expenses for office equipment, communications.

Comparison

The main difference between direct and indirect costs is the degree of influence on the production cost. Another criterion for the difference is the existence of an economic relationship with production facilities. At the same time, the same costs can refer in some cases to direct, in others - to indirect, depending on the specific stage of the production process.

For example, the cost of purchasing equipment for the production of goods will be direct in relation to the factory line (that is, they will have a close economic connection with it), but indirect in relation to the cost of production of the corresponding goods on this line.

The salary of personnel who work in production is likely to be a direct cost. But the remuneration of specialists from other departments of the company (accounting or, for example, the advertising department) is already an indirect cost.

Why, in principle, there is a need to classify the costs of a firm into direct and indirect?

In practice, this is most often due to the fact that such a division of costs is established in the provisions of Article 318 of the Tax Code and is applied when determining the timing of crediting costs by reducing the tax base.

Those types of expenses that the Tax Code of the Russian Federation refers to as direct ones can be reflected in tax reporting for the current period only as the goods are sold. Indirect costs can be recorded in full in the relevant documents. But if the firm provides services and is not engaged in the production of goods, then both types of costs can be reflected in the same period. Thanks to this, the entrepreneur is able to use their constituent amounts to reduce the tax base at the same time.

Having determined what is the difference between direct and indirect costs, and also having considered what its practical significance is, let us fix the conclusions in the table.

Table

Direct costs Indirect costs
What do they have in common?
The same costs can be direct for some areas of production and indirect - for others
What is the difference between the two?
These are costs that have a pronounced economic relationship with a particular production process.production processes
To a decisive extent affect the cost of goods produced by the companyLimited influence on the cost of goods produced by the company
May be accepted to reduce the tax base only as the sale of the goods produced by the companyCan be taken to reduce the tax base within the reporting period without restrictions
.