Similarly, materials such as miscellaneous supplies purchased in bulk—pencils, pens, paper—are typically handled as indirect costs, while materials required for specific projects are charged as direct costs.
Whether you're planning a budget or request grant funds, understanding and listing direct costs accurately on your plan helps ensure adequate funds to pay for your project. Deciding what to include in your direct costs varies from one type of business to another.
The primary expense of delivering the consulting project is the labor that went into the project.
Materials Materials can be listed as direct costs if they're only used to produce the budgeted item. Maybe you can shop around and get lower hosting costs for your online service.
That means that you are delivering your products and services very efficiently and can have a solid gross margin. Indirect costs do not vary substantially within certain production volumes or other indicators of activity, and so they may sometimes be considered to be fixed costs.
Indirect labor costs make the production of cost objects possible but aren't assigned to a specific product. For example, if an employee is hired to work on a project, either exclusively or for an assigned number of hours, their labor on that project is a direct cost.
These expenses are usually considered indirect costs, since they do not have bearing on sales on a case-by-case basis. For example, fuel cost in a telecom is usually allocated as an indirect cost, while for an airliner it is a direct cost.
In manufacturing, costs not directly assignable to the end product or process are indirect.