Direct costs can be defined as:

Direct costs are defined as expenses that can be specifically and easily traced to a particular cost object, such as a product, department, or project. This means that when you incur a direct cost, it's clear which cost object is responsible for that expense. For instance, if a company manufactures bicycles, the costs of raw materials like steel for frames or the wages of workers who assemble the bikes can be directly allocated to the cost of producing each bicycle.

Understanding what a direct cost is crucial for financial analysis, budgeting, and pricing strategies, as it allows businesses to analyze profitability and manage costs more effectively. In contrast, other types of costs, such as indirect costs, cannot be traced directly to a single product or service and include overhead expenses like utilities or rent, which support multiple cost objects. This distinction is essential for accurate financial reporting and decision-making.