Shariah point of view on direct and indirect cost in Murabahah

Abstract

Murabahah contract is an unconditional contract of sale between a seller and a buyer, where the goods, cost price, markup and payment date are clearly defined, agreed and documented. The important element is that the price should be mutually agreed upon based on the cost and margin and that cost should be determined in a fair manner in order to obtain an agreement from both parties. In conventional costing practice the accumulated cost of product consists of product cost and period cost. The product cost is divided into direct and indirect cost. Murabahah in modem transaction involves all the above costs and the price is calculated using the above cost elements. However the shari 'ah ruling only recommends the cost which contributes to the product and rejects the unrelated cost. So, this paper aims to discuss the above costs (direct and indirect) from shari'ah point of view and recommends the opinion which can be applied in modem murabahah transaction.