How to Calculate Direct Cost

The basic formula for calculating direct costs is the sum of the direct materials costs and direct labor costs. Manufacturing overhead, such as factory equipment purchases, facility upkeep costs, and employee training expenses, are considered indirect costs. While a small manufacturing business must deal with these overhead expenses, they are not part of the direct costs that go into making the actual products. It is also seldom clear what fraction of these expenses is required to make a single product, so the direct costs from manufacturing overhead cannot be easily assigned.

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