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Business Planning and Entrepreneurship by Michael Kraten

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Part IV

Cost Estimation

Chapter 8

Estimating Direct and Indirect Costs

About This Chapter

Chapter 8 begins our review of the cost estimation section by explaining how profitability should be assessed through the quantification of direct and indirect costs. Direct costs are expenditures that are required to produce and distribute goods and services, whereas indirect costs are expenditures that are required to maintain the organizational infrastructure and for other purposes.

The estimation of direct costs, in particular, is complicated by the need to match sales revenue with the costs that are required to produce them. For instance, if a cost expenditure must be made today to produce a good or service that will be sold tomorrow, it needs to ...

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