Can a cost be both a direct cost and an indirect cost?

A cost can be both a direct cost and an indirect cost. One of many examples is the cost of a supervisor in a department within a factory.

Let’s assume that Sam earns $50,000 per year as the supervisor of the machining department of a factory. Sam’s $50,000 is a direct cost of the machining department because Sam works only in the machining department. Hence, this $50,000 is directly traceable to the machining department.

Sam’s $50,000 is also an indirect product cost. It is an indirect cost because the supervisor of the machining department is part of the factory overhead costs that must be assigned to the products. (Instead of being assigned we could say that manufacturing overhead must be allocated or applied to products by using an overhead rate.) We might also say that Sam’s $50,000 is part of the factory overhead costs that must be absorbed by the products by means of a factory overhead rate.

Learn more about Manufacturing Overhead.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.

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