Analysis of Direct Costs

335 words | 2 page(s)

As with any possible estimation there is always something that may go wrong, and the process of determining the direct material costs and other direct costs for a project is no different. The term “direct costs” refers to the price that may be completely attributed to the creation and production of specific goods and services, including materials, labor, and expenses related to the production of a product (Investopedia, 2013).

Some of the many different things that may go wrong will include the idea that the product will take a larger amount of time to complete than originally anticipated, thereby increasing the amount spent on labor to numbers far greater than originally intended. Furthermore, the materials that are being used to create the product may change in price, requiring the total amount spent on the product to increase at the halfway point, for example.

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In order to work to mitigate issues such as these, it is important for a person to first have a realistic idea of how quickly a project may be completed, a best case estimation for when the project will be completed, and a worst case for when the project should be completed. They should investigate the different costs for the materials, and create a budget based off of the worst case scenario, the longest amount of time it will take and the most it will cost for materials, then base the budget off of that; this will ensure that the product should have money left over in the end, but that there has been a contingency plan in place in order to ensure that the budget has enough money in place should any one, or all, of the different worst case scenarios to occur; in this manner, the person in charge of the production of the product will also be able to show that they were able to complete the project with numbers than were lower than projected, getting themselves kudos as well.

  • Investopedia. (2013). Direct costs. Retrieved from http://www.investopedia.com

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