Direct expenses
Direct expenses are costs, other than direct materials and direct labour, that can be traced straight to one specific job or product, such as royalties or hired equipment for that job alone. They form the third component of prime cost.
See it move
Direct expenses are costs, other than materials and labour, traced wholly to one job. Building a custom yacht, Maritime Craft uses €38,000 of materials and €22,500 of labour, then hires a crane for €1,800 solely for this job, a direct expense. Prime cost totals €38,000 + €22,500 + €1,800, or €62,300.
The formula
Variables
- Direct materials (€)
- Direct labour (€)
- Direct expenses (€)
Direct expenses are the third component of prime cost, added alongside direct materials and direct labour.
Check yourself
Kestrel Print Ltd is running one job for a client. The job requires €9,200 of direct materials and 160 hours of direct labour at €18 per hour. Kestrel also pays a one-off licence fee of €640 to reproduce a copyrighted design solely on this job's packaging. General factory rent for the period is €5,000, shared across all jobs. What is the prime cost of this job?