Microlesson · 5-min read

Direct Expenses

# Direct Expenses

## Definition

Direct Expenses are any expenses other than material and labour which directly contribute to the making of the product.

## Examples of Direct Expenses

1. Hire charges of machine for specific product.

2. Technical assistance (e.g., paid to a job worker).

3. Amortisation of patents used in production.

4. Cost of specific design or software for the product.

5. Power, Fuel, Electricity, or Royalty paid (where directly attributable).

6. Amortised cost of moulds used for the product.

## Key Identification Rule

If an expense:

Can be directly traced to a specific product or job, AND
Is not material or labour

then it is a Direct Expense.

Worked example

### Example 1

Example: A company hires a special machine on rent ₹50,000 to manufacture a specific order. Royalty paid per unit produced is ₹10. If 1,000 units are produced:

Hire charges of machine = ₹50,000
Royalty (1,000 × ₹10) = ₹10,000
Total Direct Expenses = ₹60,000

⚠️ Common exam mistakes

Treating general factory power & fuel (not directly attributable) as direct expenses — they are factory OH.
Forgetting to amortise patents/moulds over their useful life.
Including general design/software costs (not product-specific) as direct expenses.

Reference:

← Previous

Administrative Overheads

Direct Labour Cost

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →

Start 15-min diagnostic