10RQ - Horngren'S Financial And Managerial Accounting

Question

Explain the difference between a direct cost and an indirect cost.

Step-by-Step Solution

Answer

The direct cost is effectively traced but the indirect cost cannot be traced easily to a cost object.

Definition of cost

The cost is defined as the expenditure required which is to create and sell products and services or to buy some assets.

Difference between a direct cost and an indirect cost

Direct cost refers to the cost which can be easily and cost-effectively traced to a cost object. But on the other hand, the indirect cost is the cost that cannot be easily or cost-effectively traced to a cost object.