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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!