Difference Between Direct And Indirect Costs

Direct costs:

Those costs that are traced to a specific cost objective like product/service.

Indirect costs:

Those costs that CANNOT be directly traceable to a particular cost objective and incurred for multiple cost objectives. Can also be called Common Cost.

Salient Point:

Direct costs are ALLOCATED to a specific cost objective but Indirect costs or common costs are assigned to multiple cost objective BY APPORTIONMENT. For example : Rental for a premise occupied by several departments is being apportioned on the basis of the relative square meters used