Question

Mention five items which are included in financial accounts but not in cost accounts

Answer 1

Direct Costs

Direct costs are related to producing a good or service. A direct cost includes materials, labor, expense, or distribution cost associated with producing a product. It can be easily traced to a product, department or project. For example, Ford Motor Company (F) manufactures cars and trucks. A plant worker spends eight hours building a car. The direct costs associated with the car are the wages paid to the worker and the parts used to build the car.

Indirect Costs

Indirect costs, on the other hand, are expenses unrelated to producing a good or service. An indirect cost cannot be easily traced to a product, department, activity or project. For example, with Ford Motor Company (F), the direct costs associated with each vehicle include tires and steel. However, the electricity used to power the plant is considered an indirect cost because the electricity is used for all the products made in the plant. No one product can be traced back to the electric bill.