Final answer:
The determination of a cost as either direct or indirect is based on the cost object chosen. Direct costs can be directly traced to a cost object, while indirect costs cannot. The distinction does not rely on accounting standards, tax systems, or inventory valuation methods.
Step-by-step explanation:
The determination of a cost as either direct or indirect depends upon the cost object chosen. A cost object is anything for which a separate measurement of costs is desired. For example, in manufacturing, the cost object could be a product, a batch of products, or a specific order.
Direct costs are costs that can be traced directly to a cost object in an economically feasible way, such as materials and labor used in the production of a specific product. Indirect costs, on the other hand, are costs that cannot be traced directly to a specific cost object or are not worth the effort to trace. Examples of indirect costs include utilities, rent, and administrative salaries that are necessary for running a factory but cannot be directly assigned to specific units of product.
The difference between these two types of costs is not determined by accounting standards, the tax system chosen, or inventory valuation methods but instead by the relationship between the costs and the cost object.