Direct Cost AND Full Cost methods

What is cost? An expenditure, usually of money, for the purchase of goods or services. An expenditure, usually of money, incurred in achieving a goal, e.g. producing certain goods, building a factory, or closing down a branch.

In business When a business plan is a new venture, such as a construction project, a cost statement is an essential tool. Businesses use cost methods to analyze their options and determine the best course of action for new projects.

Types There are two main types of cost methods: 1. Full-cost methods 2. Direct-cost methods

Definitions A direct cost method is a cost statement that includes only those expenses that relate directly to the implementation of a project, such as the cost of labour and materials.

A full cost method is a statement, on the other hand, considers all costs associated with a particular venture, such as environmental and social expenses.

Comparison A direct cost statement is usually shorter than a full cost statement. While a direct cost statement includes only basic information about the project, a full cost statement is much more detailed.

For example A business planning to build a new plant would include only the cost of land purchased, construction, materials and labour in its direct cost statement. A full cost statement, however, would include all the costs direct cost statement, and it would also include the cost of waste management and compensation.

Efficiency 1. Direct cost statements are often easier to create than the full cost statements because they involve less research and intensive calculations. 2. A company can typically create direct cost statement faster that it can create a full cost statement, which allows the company to advance the decision making process more quickly. 3. Direct cost statements are simpler and they are usually less expensive to device and publish.

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