What key factor differentiates direct costs from indirect costs?

The distinguishing feature of direct costs is that they can be specifically traced to particular cost objects, such as a product, service, or department. This direct association allows businesses to identify and allocate these costs accurately to individual items or projects. For example, the cost of materials used in manufacturing a specific product is a direct cost because it can be linked directly to that product.

In contrast, indirect costs cannot be traced back to a single cost object and are often spread across multiple products or services. These could include overhead expenses such as rent, utilities, or salaries of support staff, which support the overall operations but do not directly contribute to the production of a particular item.

The other options, while they may sound plausible, do not correctly capture the fundamental distinction between direct and indirect costs. For instance, indirect costs are not inherently higher than direct costs, nor do direct costs necessarily fluctuate with production volume in all cases; they may remain constant regardless of output. Additionally, indirect costs are not always fixed; they can be variable depending on factors such as operational needs. Thus, the ability to trace costs to specific cost objects is the key factor that clearly defines direct costs.