Explain the difference between direct and indirect costs.

Businesses have many different costs to pay when running. We can categorise these costs into different categories, such as direct and indirect costs.

A direct cost is though of as being affected by the number of units sold, for example the cost of materials (the more sandwhiches a cafe sells, the more bread it will need to buy to fulfill these sales.)

However an indirect cost, is one which is not affected by the number of units sold, for example heating (no matter how many sandwhiches the cafe sells, it still has to pay to heat the cafe, even if it sells none!)