Plain definition
Direct costs can be traced to a particular product, job, customer, or other cost object in an economically practical way. The classification depends on the chosen object, not on when cash was paid.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
A contractor uses materials and 120 recorded technician hours on one client installation. Those costs can be traced to the job, so the bid manager can compare the contract price with the job’s direct cost before accepting a discount.
Why it matters
A cost may be direct to a job but indirect to one unit, or vice versa. Misclassifying it can make a contract look profitable while its identifiable inputs exceed revenue.
Practical consequence
Choose the cost object first, retain time sheets and material records, and trace costs where evidence is available. Do not spend more effort tracing a small item than the improved decision is worth.