Final answer:
Direct costs in accounting can be conveniently and physically traced to a specific cost object, unlike indirect costs. Costs in business are categorized into fixed and variable, where fixed costs like rent remain constant irrespective of production levels.
Step-by-step explanation:
The distinction between direct costs and indirect costs in business accounting rests on the ability to trace a cost to a cost object. For a cost to be considered direct, it must be conveniently and physically traced to a cost object under consideration, meaning that the cost can be directly associated with the production of a specific good or service.
In business operations, costs are decomposed into fixed costs and variable costs. Fixed costs, such as rent on a factory, remain constant regardless of the level of production. These are expenditures on fixed inputs, like capital, which do not change in the short run and are considered sunk costs; they don't influence future production or pricing decisions. On the other hand, variable costs fluctuate with the level of output and typically show diminishing marginal returns.