Courses : Intermediate Macroeconomics Lecturer : Frischa Adellia Semester : 4th Semester, 2022/2023 Sesion Direct cost Direct costs are costs that are directly related to the production or supply of a product or service. These costs can be attributed specifically and accurately to certain products or services, so that they can be calculated directly in production or procurement costs. For example, raw material costs, direct labor costs, and direct factory overhead costs (such as electricity and fuel for production machines) are types of direct costs that are directly related to the production of a product. In calculating production costs, direct costs are calculated together with indirect costs to obtain the total production costs. However, direct costs tend to be easier to calculate and monitor because these costs are directly related to the production or procurement of a product or service. Direct cost control can assist companies in estimating production costs and generated profits, as well as increasing production efficiency and effectiveness. Therefore, measuring and managing direct costs is an important part of cost management and management accounting. Direct cost management involves collecting, analyzing, and controlling costs directly related to the production or procurement of a product or service. The objective of direct cost management is to minimize production costs and increase the company's operational efficiency. An example of implementing direct cost management is in a manufacturing company. Production managers can use information about direct costs to estimate the cost of producing a product, so they can determine the right selling price and optimize the profit generated. In addition, production managers can also use information about direct costs to monitor operational efficiency. For example, by monitoring direct labor costs, production managers can evaluate the work efficiency of employees and identify areas that need improvement. This can help companies to increase productivity and reduce production costs. In general, managing direct costs can help companies manage production costs, improve operational efficiency, and increase profits generated. Therefore, companies must monitor direct costs closely and carry out regular analysis to ensure effective cost control. Examples of direct costs include: 1. Raw materials: direct costs associated with raw materials or goods purchased to be converted into finished products. 2. Direct labor: direct costs associated with the salaries and wages of labor directly involved in the production process. 3. Direct delivery: direct costs associated with delivering the product to the customer, such as shipping and packaging costs. 4. Direct packaging: direct costs associated with manufacturing the product packaging. 5. Direct equipment: direct costs associated with the equipment used in the production process, such as the cost of renting or purchasing machinery and equipment. An example of applying direct costs is when a food company calculates the direct costs associated with the production of a package of instant noodles. Related direct costs include raw material costs for noodles, seasonings, and packaging, direct labor costs for producing noodles, direct shipping costs for sending products to distributors, and direct packaging costs for making product packaging. By knowing the direct costs associated with the production of a package of instant noodles, companies can determine the right selling price that can maximize profits. Companies can also decide whether to increase production efficiency or look for cheaper cost alternatives to reduce direct costs and increase profits. In cost management, direct costs are very important because these costs can be easily traced and attributed to specific products or business units. This allows companies to know clearly how much it costs to produce certain products or to carry out certain business activities. In addition, direct costs can also be used to perform a cost-benefit analysis. By knowing the direct costs associated with an activity, companies can evaluate whether the benefits derived from these activities are commensurate with the costs incurred. This can help companies make better business decisions. However, keep in mind that direct costs do not always provide a complete picture of production costs or overall business costs. There are still other costs that are not directly attributable to certain products or business units, such as overhead costs or indirect costs. Therefore, companies also need to take into account these costs in making business decisions. The following are some characteristics of direct costs: 1. Can be directly attributable to a specific product or business unit. 2. Changes in line with production volume or business activity. 3. Easily traced and controlled by company management. 4. Easier to manage and control than indirect costs. 5. Can be used to perform cost-benefit analysis and evaluation of business performance. By understanding these characteristics, companies can distinguish direct costs from indirect costs and use them for better business decision making.