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Can a cost be both a direct cost and an indirect cost?

Author:
Harold Averkamp, CPA, MBA

A cost can be both a direct cost and an indirect cost. One of many examples is the cost of a supervisor in a department within a factory.

Let’s assume that Sam earns $50,000 per year as the supervisor of the machining department of a factory. Sam’s $50,000 is a direct cost of the machining department because Sam works only in the machining department. Hence, this $50,000 is directly traceable to the machining department.

Sam’s $50,000 is also an indirect product cost. It is an indirect cost because the supervisor of the machining department is part of the factory overhead costs that must be assigned to the products. (Instead of being assigned we could say that manufacturing overhead must be allocated or applied to products by using an overhead rate.) We might also say that Sam’s $50,000 is part of the factory overhead costs that must be absorbed by the products by means of a factory overhead rate.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

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