We open a business: what include direct and indirect costs

Before starting a new business, you should maximally accurately estimate the future costs of the project. Indeed, important indicators such as project profitability and the payback period will depend on them.

The activities of any commercial enterprise cannot be imagined without the cost of certain resources. All costs involved in the implementation of a business project can be divided into direct and indirect. All these costs must be tried to predict as accurately as possible in order to draw up a business plan.

What is included in direct costs

Direct costs are directly related to the company's products or services. They are included in the cost using the direct method. When calculating income tax, direct costs are taken into account as products are sold.

Most often, the following groups are included in the direct cost structure:

- material costs;

- labor costs and salary deductions;

- depreciation deductions;

- other types of costs.

The material costs include all materials used, with the exception of products of own production. This, in particular, raw materials, semi-finished products, building materials, components, fuel, spare parts, containers, etc. Their list and specific gravity differs depending on the industry. For example, for metallurgy, an important share will be occupied by electricity costs, and for the food industry, the largest share will be in raw materials. The criterion for classifying material costs as direct is that the materials included here during their further redistribution become part of the finished product, i.e. transfer their value to it.

The cost of labor include the cost of the salary of employees directly involved in the production process. This, for example, the salary of programmers in a company engaged in the development of sites, or masters in a construction organization. But the salary of accountants and administrative staff can be attributed to indirect costs. It is worth considering that this group of expenses includes not only salary, but also various incentives, bonuses, vacation pay, as well as various deductions to extra-budgetary funds.

Depreciation expense is incurred using depreciation rates. They are a process of partial transfer of the value of fixed assets as they become depreciated at cost.

Often the costs include the cost of services of auxiliary industries and external contractors. Direct costs include other types of costs that are directly related to production.