(Editor’s Note. Though the paper addresses cost accounting standards 418 and 410 partly because the client is CAS covered, we believe the arguments are equally valid to non-CAS covered contractors because (1) the substance of the standards are replicated in FAR 31.203 and (2) CAS are the most authoritative standards over cost allocation issues.) CAS 418 provides an overall framework for accounting for and allocating direct and indirect costs. The CAS Board defines a direct cost as "any cost which is identified specifically with a particular final cost objective." Indirect costs, by default, are simply all costs that are not direct costs. The standard, per se, does not establish criteria for distinguishing direct and indirect costs but requires contractors to develop their own criteria, demonstrating the CAS Board’s intention to provide contractors the flexibility to distinguish their own direct form indirect costs. Rather, the CAS Board provides guidelines using concepts of "homogeneity" and "materiality" to be applied after the contractor has established its own policies for classifying costs as direct or indirect.

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