Continue the Learning: Apply Direct & Indirect Costs to Your Business

Understanding direct and indirect costs is critical, but the real challenge lies in applying this knowledge to your business. Now that you’ve been through the Income|Outcome simulation, take the next step by examining how these costs function in your own organization.

Task: Analyze Your Own Cost Structure

1. Identify Five Business Expenses

• List five regular expenses in your department, team, or company.
• Include a mix of costs—some that clearly belong to production and others that support overall operations.

2. Classify Each as Direct or Indirect

• For each expense, determine whether it is direct (tied specifically to a product/service) or indirect (supports the business but is not tied to a specific product/service).
• Example: A restaurant’s food ingredients are direct costs, while its accounting software subscription is indirect.

3. Assess the Impact on Profitability

• Consider how each cost affects pricing and profitability.
• If you cut this cost, would it impact your ability to generate revenue? If so, how?

4. Compare to Your Simulation Decisions

• Reflect on how your team handled direct and indirect costs during the simulation.
• Did you prioritize cost control or revenue growth? Did you fully account for indirect costs?
• How does this compare to what happens in your actual business?

Next Step: The Challenge of Semi-Variable Costs

Not all costs fit neatly into "direct" or "indirect" categories. Many expenses have both fixed and variable components—these are semi-variable costs (e.g., utilities, some salaries, or maintenance expenses).

📖 Read our post on semi-variable costs.

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That’s it! Short, sweet, and hopefully useful.