Direct Cost Definition

A direct cost is a cost that can be directly attributed to the production of a good or service. Direct costs are typically variable costs, which means they vary in relation to the amount of output produced. For example, the direct cost of raw materials used in the production of a widget would be the cost of the widgets produced. The direct cost of labor would be the wages paid to workers who produce the widget.

In accounting, direct costs are often contrasted with indirect costs. Indirect costs are those that cannot be directly attributed to the production of a good or service. For example, indirect costs might include rent for the factory space where widgets are produced or the salaries of administrative staff who work in the widget factory but do not directly contribute to widget production.