Direct costs and indirect costs are two types of expenses that companies can incur. Direct costs are expenses that can be directly tied to the production of specific goods or services, and can be traced to a specific cost object, such as a product, department, or project. Examples of direct costs include raw materials, labor, and equipment.

Indirect costs, on the other hand, are expenses that apply to more than one business activity and cannot be assigned to a specific cost object. These costs are often referred to as overhead costs and include expenses such as rent, utilities, and administrative expenses.

It is important to distinguish between direct and indirect costs because it helps businesses understand the true costs involved in producing their products or services, which can lead to more competitive pricing. Additionally, tracking direct and indirect costs separately can help businesses better manage their accounting and plan for the future.

In summary, direct costs are expenses that can be directly traced to the production of specific goods or services, while indirect costs are expenses that apply to more than one business activity and cannot be assigned to a specific cost object.