COMSATS Institute of Information Technology, Islamabad

Assignment # 1

Program: MPA Instructor: Abdullah Naeem

Semester: IV Course Code: 405

Date: May 3, 2016 Title: Public Finance

Assignment Topics/Question: Differentiate between

I. Direct Benefit Vs Indirect BenefitII. Direct Cost Vs Indirect Cost

Answer of Question No. 1

Direct Benefit Vs Indirect Benefit (On Projects)

Irrigation Project

On Irrigation Project, the purpose of the Direct and Indirect Benefits is to increase the fertility of

particular tract of land if we work on Irrigation Project.

Direct Benefits: Direct Benefits are the benefits which attributable / concern to the purpose of the

project (Government). Direct benefits are those benefits which increase in output and productivity

related to the purpose of the project.

For example, in the above said project (Irrigation Project), the purpose of direct benefit is to increase

the fertility of a particular tract of land.

The direct benefit in this case will be the net increase over time in agricultural output on the tract of

land being irrigated.

In corporate terms, we can say that the direct benefits are optional, non-wage compensation provided

to employees in addition to their normal wages or salaries i.e. group insurance (health and life etc.),

retirement benefits and funding of education.

Indirect Benefits: Indirect Benefits are the benefits which attributable and related to the project

(Government) that were not part of the intended purpose of the project. Indirect Benefit increases in

adjoining land’s output. Indirect benefits accruing to individuals not directly associated with the

purpose of the project.

For example, in irrigation project, the indirect benefits might include the improved fertility of

adjoining land which is not irrigated by the scheme which results from changes in the height of the

water table in the area.

In corporate terms, we can say that an indirect benefit is a return that cannot be directly observed but

is realized.

Muhammad Imran Irshad: FA14-MPA-002/cvc

COMSATS Institute of Information Technology, Islamabad

Assignment # 1

Answer of Question No. 2

Direct Cost Vs Indirect Cost

Irrigation Project

On Irrigation Project, the purpose of the Direct and Indirect Costs is to increase the fertility of

particular tract of land if we work on Irrigation Project.

Direct Cost: Direct Cost means that the resources which are employed in the project.

Indirect Cost: Indirect Cost decreases in water level in surrounding areas.

Here is difference between Direct Cost and Indirect Cost: -

Direct Cost Indirect Cost

The direct cost is a cost which is easily

attributable to a cost object.

Indirect cost is a cost which cannot be

allocated to a particular cost object.

The direct cost is for specific projects The indirect cost is for multiple projects

When the all direct costs are taken

together, they are known as prime costs.

The total of all the indirect costs is called

as overheads.

The direct cost is traceable. The indirect cost is not traceable.

(Untraceable)

The direct cost is classified as direct

material, direct labor and direct expenses.

The indirect cost is classified as indirect

material, indirect labor, indirect overheads

Muhammad Imran Irshad: FA14-MPA-002/cvc