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Cpt

aayushshah (student) (27 Points)

28 April 2014

does direct cost refers to trading items and indirect refers to pnl item ?

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CA Gyati Gupta (In Practice) (8227 Points)
Replied 29 April 2014

you may assume so ..

but it is better to understand the real meaning..

-direct cost is the cost incurred on procuring , manufacturing the goods. ( directly related to manufacturing/ purchase). for eg, wages, freight inward.

-direct cost is assumed in trading a/c

-indirect cost involes the cost indirectly related to production, and the cost related to sales.

for eg, selling and distribution expenses

-indirect cost are considered in p&l a/c

wages are given to labour ,which is directly associated with the production, hence direct cost,

whereas salary is given to the staff (indirectly related to production and for understanding purpose u may assume that staff sitting in the office helps is boosting sales), hence indirect cost.