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Direct Cost: Definition and Meaning
Definition
A direct cost is a cost that can be specifically connected to a product, service, project, department, or customer.
Why It Matters
Direct-cost tracking is important for pricing, profitability analysis, project management, and job costing. A business that cannot identify the cost of producing work may have difficulty understanding which products, services, or projects are truly profitable.
For construction companies, direct costs may include labor, materials, subcontractors, equipment use, permits, and other expenses assigned to a particular job.
Example
Materials purchased specifically for one construction project are generally direct costs of that project.
Related Terms
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