Which statement correctly contrasts direct and indirect costs?

Which statement correctly contrasts direct and indirect costs?

• A. Direct costs can be attributed to a specific item of work, while indirect costs do not.
• B. Indirect costs can be attributed to a specific item, while direct costs cannot.
• C. Both are always fixed.
• D. Direct costs are always fixed, indirect always variable.

Answer: (A)

Direct costs are the ones you can clearly trace to a specific item of work, such as a particular product or job. Indirect costs, by contrast, do not point to a single cost object and must be allocated across multiple items because they support the overall operation. That contrast is exactly what this statement says: direct costs attach to a specific item, while indirect costs do not. It’s also helpful to remember that whether costs are fixed or variable is not determined by direct vs indirect; both types can be either. For example, direct materials and direct labor can vary with production, while some indirect costs are fixed overhead, and some indirect costs vary with activity.

Direct costs are the ones you can clearly trace to a specific item of work, such as a particular product or job. Indirect costs, by contrast, do not point to a single cost object and must be allocated across multiple items because they support the overall operation. That contrast is exactly what this statement says: direct costs attach to a specific item, while indirect costs do not. It’s also helpful to remember that whether costs are fixed or variable is not determined by direct vs indirect; both types can be either. For example, direct materials and direct labor can vary with production, while some indirect costs are fixed overhead, and some indirect costs vary with activity.