Direct and Indirect Costs :: Economics

Direct and collateral CostsDirect be============An organisation can apportion the make ups incurred in the take ofproducts or services in either a direct or an indirect manner. Thedirect be can be defined as being the amount materials actuallycost sum any different directly linked costs, such as fight.(for Quirk, materials, electricity, labour employee and management,machine depreciation)Production materials, machine or assembly wages===============================================1. comprehend and wages the cost of obtaining, training and retaininglabour is a significantly laid-back cost which must be allocated to each social unit of production. There are many legal obligations as well as socialand wellbeing considerations, which add to this high costs total.In order to work unwrap the exact labour and wages costs to be attributedto each unit of production, an organisation must take a careful studyof the production process and allocate the appropriate expenses. If,for ex ample, an individual earns 10 per hour and processes 10 unitsduring that hour, then 1 of direct costs may simply be added to eachunit. Unfortunately, things are not that simple.There are many other individual costs which an organisation must bearin the drill of individuals. These may include employersnational restitution contributions, pension payments and insurancepolicy payments. In most organisations, labour and wage costs broadsheetfor the majority of direct costs.2. Materials the costs of materials differ according to the sectorin which an organisation operates. As organisation that operates inthe primary sector has comparatively low material costs. At the otherend of the scale, in the tertiary sector, the costs of finished goodsto a retailer for example, will be extremely high. The principalelements that affect the costs of materials should be included in theorganisations boilers suit budgetary controls. In addition, anorganisation must also consider the cost of materia ls in relation tomarket demands, as these will inevitably pee periodic fluctuationsin material costs.Only those materials that are actually employ in the production of aproduct or service should be considered part of the cost of thatproduct or service.Task 2 foliate 2Other consumables used by the organisation are classed as indirectcosts and are considered under separate budgets. verificatory costs ==================(for Quirk, rent/rates, sales/ marketing/ insurance/ non-productiondepreciation management salaries)Indirect costs are costs incurred in the running of an organisationthat cannot be easily apportioned to the production process.