How to Calculate Direct Costs

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In cost accounting, the manufacturing process will have two main types of costs, direct and indirect. A direct cost is one that is directly associated with the production and manufacturing of a product. An indirect cost is a cost that does not have an association to the product, but is still taken by the company. An example of a direct cost is the wages of employees on the assembly line. An example of an indirect cost is an administrative assistant's wages. Direct costs are easy to find because they will normally encompass only direct materials and direct labor.

Add together the amounts of all materials used for the product. This is total direct materials. Do not include any materials for separate products or those not used for production of the product.

Add together all labor costs for employees who worked on the product. This is total direct labor. Do not include any labor that was not directly used to produce the product.

 

Add together direct materials and direct labor to find total direct costs.