How do direct costs affect a company's profitability?

How do direct costs affect a company's profitability?

Direct costs, such as materials and labor, directly impact profitability by reducing the gross margin.

Can you give me an example of direct costs?

Sure! Examples include raw materials, manufacturing labor, and shipping costs.

What strategies can a company use to manage direct costs?

Companies can negotiate with suppliers, optimize production processes, and implement cost control measures.

How can reducing direct costs improve profitability?

Reducing direct costs increases the gross margin, allowing for higher profits on each sale.

Are there any risks in focusing too much on reducing direct costs?

Yes, over-focusing on direct costs can lead to lower quality products and employee dissatisfaction.