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Direct Expense and examples

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Direct Expenses are expense which are directly involved in the production process in case of manufacturing or selling process in case of a trading business.

While calculating cost of the goods sold or cost of production it is necessary to include all expenses directly attributable to putting the goods in a saleable condition.For Instance,When Goods are purchased the carriage inward on such purchases is sometimes payable by the buyer.He may also be required to pay freight,duty,clearing charges,dock dues,on imported goods.All these are direct expenses on purchases and must be included in the cost of such purchases.

Similarly, a manufacturing business incurs expenses on labor that is wages, on power,and various other expenses like ,factory rent, lighting for the purpose of production.These are also direct expenses incurred for putting the goods in saleable condition.All direct expenses,both on purchase and production will increase the cost of goods.

Following are the Direct Expense in case of a trading Business.

  1. Purchase of goods for sale. – Purchase Account
  2. Freight Involved in the purchase of goods. – Carriage Inward or Freight inward
  3. Wages to trading staff.- Wages Account
  4. Godown or shop rent -Rent paid account.
  5. Electricity for godown & shop –  Electricity Account.
  6. Godown & shop insurance – Insurance Account

Following are the Direct Expense Example in case of a manufacturing business.

  1. Purchase of raw material
  2. Purchase of consumables for machinery.
  3. Transportation & Freight involved in purchasing raw materials and consumables.
  4. Factory electricity & lighting
  5. Wages to factory labors.
  6. Factory rent in case of rented building.
  7. Maintenance charges to Machinery and factory building.
  8. Factory Insurance
  9. Depreciation of Machinery & Amortization Building etc.

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