Direct product costs, refer to all expenses incurred in the production of a given product without intermediate calculation. This term can also be used to refer to the costs incurred directly by purchasing a wholesale product for resale. The allocation of this type of cost requires careful and precise analysis, as well as the use of appropriate accounting tools.
Direct costs vary in nature. They can vary according to the volume of production and purchases. Various external factors such as exchange rate fluctuations or changes in supplier prices can also impact direct costs.
The name of the direct costs by product can also change depending on the activity of the company. For example, they are called “cost of goods sold” in a manufacturing company. In a retail or wholesale business, they are simply called “cost of sales”.