Download Direct Cost Vs. Full Cost methods

Direct Cost AND Full Cost methods
What is cost?
• An expenditure, usually of money, for the purchase of goods or
services. An expenditure, usually of money, incurred in achieving a
goal, e.g. producing certain goods, building a factory, or closing down
a branch.
In business
• When a business plan is a new venture, such as a construction
project, a cost statement is an essential tool.
• Businesses use cost methods to analyze their options and determine
the best course of action for new projects.
Types
• There are two main types of cost methods:
• 1. Full-cost methods
• 2. Direct-cost methods
Definitions
• A direct cost method is a cost statement that includes only those
expenses that relate directly to the implementation of a project, such
as the cost of labour and materials.
• A full cost method is a statement, on the other hand, considers all
costs associated with a particular venture, such as environmental and
social expenses.
Comparison
• A direct cost statement is usually shorter than a full cost statement.
• While a direct cost statement includes only basic information about
the project, a full cost statement is much more detailed.
For example
• A business planning to build a new plant would include only the cost
of land purchased, construction, materials and labour in its direct
cost statement.
• A full cost statement, however, would include all the costs direct cost
statement, and it would also include the cost of waste management
and compensation.
Efficiency
• 1. Direct cost statements are often easier to create than the full cost
statements because they involve less research and intensive
calculations.
• 2. A company can typically create direct cost statement faster that it
can create a full cost statement, which allows the company to
advance the decision making process more quickly.
• 3. Direct cost statements are simpler and they are usually less
expensive to device and publish.
•Thank You!