U.S. flag

An official website of the United States government

Dot gov

Official websites use .gov
A .gov website belongs to an official government organization in the United States.

Https

Secure .gov websites use HTTPS
A lock () or https:// means you’ve safely connected to the .gov website. Share sensitive information only on official, secure websites.

Breadcrumb

  1. Home
  2. Direct Costs

Direct Costs

ABUS 026

DAU GLOSSARY DEFINITION

Any costs that are identified with a final “cost objective,” which is usually a specific contract. The most common examples of direct costs are direct material, direct labor, and other direct costs (ODCs). Prime contractors may include subcontractor prices as part of direct material. In short, costs identified specifically with a contract are direct costs of that contract.

Alternate Definition
A direct cost is any cost that can be identified specifically with or traced to a particular final cost objective. According to FAR Part 31.001, a cost objective is a function, organizational subdivision, contract, or other work unit for which cost data are desired and for which provision is made to accumulate and measure the cost of processes, products, jobs, capitalized projects, etc. Most common categories of direct costs are direct material, direct labor, and other direct costs.
General Information

Direct cost means any cost that is identified specifically with a particular final cost objective. Direct costs are not limited to items that are incorporated in the end product as material or labor. According to FAR 31.202, no final cost objective shall have direct costs allocated to it, if other costs incurred for the same purpose and like circumstances have been included to any indirect cost pool to be allocated to that of any other final cost objective.

 

Costs identified specifically with a contract are direct costs of that contract. All costs identified specifically with other final cost objectives of the contractor are direct costs of those cost objectives. Direct costs typically include direct material, direct labor, and other direct costs (ODC). Contractors may include their subcontracts as part of their direct material. An ODC is a cost that can be identified specifically with a final cost objective that is not treated as either a direct material or direct labor cost. Examples of ODCs may include travel, special tooling and test equipment, computer services, consultant services, preservation, and packaging.

 

According to FAR 31.202 for reasons of practicality, contractor’s may treat some direct costs of a minor dollar amount as an indirect cost if the accounting treatment is consistently applied to all final cost objectives; and it produces substantially the same results as treating the cost as a direct cost. For example, although a final product may require a certain number of nails, nuts and bolts, an actual physical count may be impractical, even more when taking into account scrape, rework or inventory shrinkage. Such items may be charged by bulk weight or dollars per pound.

Courses