what is the difference between a direct cost and an indirect cost? Give an example of each

jenny lynn

Hello Cruiser2006pt,
In my world... the world of Grant Writing... when building a budget for a proposal we frequently use Direct & Indirect Cost lines.
For example - A proposal for funding a potential program would ouline direct costs as things like, Fees for the professional who will administer the program (Salaries). Direct Costs would also include all the costs of (Materials) and (Equipment) to carry out the program.
We use a line item Indirect Costs when we are trying to show how the "asking" organization is putting in their share (in an indirect manner --- not cash in hand) toward the implimentation of the program. Example. A school wants to initiate a new Arts Initiative. The school must "match" the funders gift (or grant) but has no actual cash to meet this financial obligation. However, the school can show Indirect Costs for which they are willing to incure, thus putting toward the program "indirectly".
Some Indirect Costs include: Use of school (Room or Space) during event. You will have to give this a value. Estimated cost of (Utilities) to run the event. If a school janitor will be utilized to clean up after the event, a portion of his/her salary this could be an indirect cost. Use of school (Supplies) already in building that will be untilized during program.
Hope this give you some ideas!

If this was helpful be sure to rate this answer! thank you, jenny lynn

delite

direct cost> you manufacture and sell finished handbags. cost of materials to make the bag is a direct cost other direct costs are labor, and shipping.

indirect costs> accounting, legal and admisntration incur costs for the manufacturer of the handbags as well other area of production not related to handbags. Costs associated for the handbag operation are allocated. These allocated costs are indirect.

morgaine300

This is a more lengthy explanation I gave in another post:

http://www.askmehelpdesk.com/finance...ts-184199.html