Which type of costs can be classified as direct costs?

Direct costs refer to those expenses that can be directly attributed to a specific project, activity, or product. This typically includes labor costs for workers who are directly involved in production and the costs of materials that are used specifically for that project.

The classification of labor and direct materials as direct costs is accurate because these expenses can be traced directly to the cost object. For instance, if a company is constructing a building, the wages paid to the workers who are physically building the structure and the costs of the bricks, wood, and other materials used directly in that construction are direct costs. They vary in direct proportion to the level of production or activity that occurs. Understanding this distinction helps project managers and cost technicians accurately allocate costs and maintain control over project budgets.

In contrast, the other options represent different types of costs that do not fall under direct costs. Overhead and indirect costs, for example, are not directly traceable to a single project and are typically distributed across various projects. Fixed and variable costs refer to how costs behave concerning production levels and are not specifically categorized as direct or indirect. Lastly, only considering variable costs excludes the significant aspect of direct labor, which can be fixed depending on the structure of employment. Recognizing direct costs enables clearer insights into