Direct cost:

A direct cost is a cost that cannot be easily and conveniently traced to the particular cost object under consideration. The concept of direct cost extends beyond just direct material and direct labor. Example: Suppose woodland company is assigning costs to it’s various regional and national sales offices. Then the salary of the sales manager in its Bombay office would be a direct cost of that office.

Indirect cost:

An indirect cost is a cost that cannot be easily and conveniently traced to the particular cost object under consideration. For example: Igloo company makes varieties ice-cream. The factory manager’s salary would be an indirect cost of a particular variety such as igloo chocbar.

Role in decision-making

Direct cost includes direct material, direct labor; on the other hand indirect cost includes indirect material and indirect labor. They are playing a great role in decision-making, but not individually. They have a significant impact on manufacturing cost, because these costs are included in manufacturing cost. So ultimately they are playing role in setting selling price.

Mixed cost:

A mixed cost is one that contains both variable and fixed cost elements. Mixed costs are also known as semi-variable cost. Mixed cost is calculated by following equation.

Y = a  bx
Here Y = Total cost
a = fixed cost
b = Variable cost
x = Total unit.

The fixed portion of a mixed cost represents the basic, minimum cost of just having a service ready and available for use. The variable portion represents the cost incurred for actual consumption of the service. The account analysis and the engineering approach is used to estimate the fixed and variable portion of a mixed cost.

For example: The cost of providing X-ray services to the to patients at the P>G hospital is a mixed cost. There are substantial fixed costs for equipment depreciation and for salaries for radiologists and technicians but there are also variable costs for X-ray film, power and supplies.

Role in decision-making

Mixed costs also have some role in decision-making because this cost is a combined form of fixed and variable cost. As we know fixed costs are constant but variable cost differs with the production level. So, by reducing the variable cost we can decrease total unit cost and it will help to increase net income.