The fundamental requirement of CAS 402 is that all costs incurred for the same purpose in like circumstances be treated as either direct costs only or indirect costs only, with respect to the final cost objectives. The standard drives home this point by saying (1) a cost cannot be an indirect cost if other costs incurred for the same purpose, in like circumstances, are treated as direct costs and vice versa. Although these requirements are stated in terms of costs incurred, they apply equally to estimates of costs for contract proposals. The consistency requirement addresses only those costs that cross the boundary of direct and indirect – hence, inconsistent treat of costs that remain direct costs or indirect costs is not an issue in CAS 402.

The CAS Board (CASB) required a contractor to (1) disclose its cost accounting practices (2) establish criteria, appropriate to its own situation, for selecting alternative accounting practices and (3) adhere consistently to its choices. If a contractor is required to submit a Disclosure Statement then that is the vehicle by which a contractor describes its criteria for selecting cost accounting practices and the circumstances that determine whether or not types of costs are incurred for the same purpose. If a Disclosure Statement is not required the determination of direct and indirect costs "shall be based upon the contractor’s cost accounting practices used at the time of contract proposal."

A contractor should carefully consider its criteria for selecting alternative cost accounting practices and for distinguishing between direct and indirect costs. Once these criteria are established, any changes to them are considered changes in accounting practices that are subject to contract price adjustments. Generally contractors make decisions about direct or indirect treatment for costs of categories, activities or functions and to the elements that compose those costs. For example, they should consider under what circumstances are the following costs to be treated as direct or indirect – material, labor, supplies, tooling, equipment rental, depreciation, fringe benefits, travel, contract administration, service and support centers, research and development and bid and proposal. There are no inherent characteristics that exists whether these and other costs should be treated as direct or indirect. Also, once a decision is made, then the contractor must decide how to treat associated costs. For example, if material is to be a direct cost it must decide how to treat the other associated cost elements such as insurance, freight, receiving costs, storeroom, etc. Or for direct labor, are fringe benefits to be direct or indirect.

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