The essential difference between direct costs and indirect costs is that only direct costs can be traced to specific cost objects. A cost object is something for which a cost is compiled, such as a product, service, customer, project, or activity. These costs are usually only classified as direct or indirect costs if they are for production activities, not for administrative activities (which are considered period costs). Show
The concept is critical when determining the cost of a specific product or activity, since direct costs are always used to compile the cost of something, while indirect costs may not be assigned to such a cost analysis. It can be too difficult to derive a cost-effective methodology for the assignment of indirect costs; the result is that many of these costs are considered part of corporate overhead or production overhead, which will exist even if a specific product is not created or an activity does not occur. Direct costs tend to be variable costs, while indirect costs are more likely to be either fixed costs or period costs. Using Direct Costs and Indirect Costs in PricingAt a minimum, direct costs should always be included in the derivation of a product’s price, since the established price must always equal or exceed its direct cost; otherwise, every sale will generate a loss. Pricing based just on direct costs makes the most sense in situations where there is an opportunity to sell a few extra units on a one-time sale with excess production capacity. Indirect costs should also be included in the derivation of a product’s price when setting long-term rates, where product sales must cover both direct and indirect costs. Examples of Direct Costs and Indirect CostsExamples of direct costs are direct labor, direct materials, commissions, piece rate wages, and manufacturing supplies. Examples of indirect costs are production supervision salaries, quality control costs, insurance, and depreciation.  Transcribed Image Text:Question 1 Which of the following statements concerning direct and indirect costs is NOT true? OA particular cost may be direct or indirect, depending on the cost object. O A direct cost is one that can be easily traced to the particular cost object. The factory manager's salary would be classified as an indirect cost of producing one unit of product Whether a particular cost is classified as direct or indirect does not depend on the cost object. Q: Which of the following is NOT true ? a. The salary of the factory manager is considered… A: Overhead means the cost incurred indirect in factory for the production of goods. Manufacturing… Q: page 1076 question 2: Which type of manufacturing cost (direct materials, direct labor, variable… A: Under variable costing, fixed factory overhead is considered as a period cost and deducted a full… Q: 2 set 2 A: Fixed cost and variable cost: Q: Question 2 Direct costs: are incurred to benefit a particular accounting period. are incurred due to… A: Direct cost are those cost which can be directly link to the manufacturing of goods or rendering of… Q: Which of the following describes a fixed cost? O a. total cost that fluctuates with changes in… A: Variable cost means the cost which vary with the level of output and fixed cost means the cost which… Q: What is a predetermined overhead rate and explain why many companies use it? 2. Many… A: A predetermined overhead rate:-It is an allocation rate that is applied to the estimated cost of… Q: a) What are the advantages of accumulating costs by departments or jobs rather than for the factory… A: Cost: Cost can be defined as the cash and cash equivalent which is incurred against the products… Q: Which one of the following is not a cost element in manufacturing a product? Office salaries… A: Cost Accounting: It is the process of collecting, recording, analyzing the cost, summarizing cost,… Q: Which one of the following is not a cost element in manufacturing a product? Office salaries… A: Cost Accounting: It is the process of collecting, recording, analyzing the cost, summarizing cost,… Q: What factor, related to manufacturing costs, causes the difference in net earnings computed using… A: Under Absorption Costing, the fixed costs are allocated between Cost of Goods sold and Inventories.… Q: What is the inventoriable product costs Select one: O a. Are the direct and indirect costs of… A: Product costs are the cost incurred in the manufacturing of products. product costs consist of… Q: What is the inventoriable product costs Select one: O a. Are the direct and indirect costs of… A: inventoriable product costs consists of costs incurred in producing the goods. all the direct and… Q: Which of following is not correct about normal costing? Select one: a. Predetermined rate is used to… A: Normal Costing used actual data in order to calculate the cost of the product. This costing drives… Q: Which of the following is NOT correct about the classifications of costs? Select one: a. On the… A: Costs in the business can be classified into different types like on the basis of time, on the basis… Q: Which one is a controllable cost? Select one: O a. Office salary O b. Cost of Raw material O c. Rent… A: Click to see the answer Q: Why are product costs sometimes called inventoriable costs? Describe the flow of such costs ina… A: Product costs: The costs incurred to acquire the merchandise, ship the stock, prepare the… Q: Which of the following is true about absorption costing? * O No fixed factory overhead is charged to… A: Solution: The true statement about the absorption costing is that "over applied factory overhead is… Q: What is the inventoriable product costs Select one: a. Are the direct and indirect costs of… A: Product costs are the cost incurred in making the product and it has appeared in the financial… Q: Consider the following statements regarding traditional costing system: I – Overhead costs are… A: Introduction Traditional costing system may be defined as that type of costing system in which… Q: Determine the following is best described as a fixed, variable, or mixed cost with respectto product… A: On the basis of cost behaviour, a cost can be classified into three major categories: Fixed cost:… Q: An allocation base! O a. is a measure used to assign prime costs to products and services O b.… A: An allocation base is the basis on which Cost accounting allocates overhead costs. An allocation… Q: Which type of manufacturing cost (direct materials, direct labor, variable factory overhead, fixed… A: Cost of goods manufactured as per Absorption costing = Direct material + Direct labor + Variable… Q: #1. What criteria should the operating units (i.e. producing segments of the firm) use when deciding… A: 1. The decision to choose between the job and the process costing depends on various factors. These… Q: 1. Define cost accounting, what are the two basic types of product costing. Explain any one of them… A: Accounting is the process of recording financial transactions that are material to the business. It… Q: Which of the following is true about absorption costing? No fixed factory overhead is charged to… A: Solution: The true statement about absorption costing is that "over-applied factory overhead is… Q: . Enter the dollar amount of each cost item under the dp tems in the preceding list. Note that each… A: Given that, Quarterly cost data of level of operations are given at 100% capacity of operating. So,… Q: Which of the following correctly describes the term cost driver? a. The total material, labor, and… A: Costing means the part of accounting whereby the costs related to the manufacture of the goods are… Q: Which of following is not correct about normal costing? Select one: O a. Product cost includes the… A: Option a (Product cost includes the applied indirect manufacturing cost) is not correct about normal… Q: 43. For product costing purposes, an indirect factory cost Group of answer choices Is not… A: Indirect factory costs is costs related to factory which can not be directly allocated to any… Q: Which of the following is not considered a product cost? Select one: a. direct labor b. direct… A: Product cost includes all the cost incurred to manufacture the product. Q: multiple choice 1. What is the difference between “Absorption costing”, “Variable costing” and… A: The questions are multiple choice questions. Q: Which of the following is not a product cost? Multiple Cholce O Direct materlals ) Direct labor… A: Product cost is that which is not included in the direct manufacturing of the goods. Direct… Q: a. TRADITIONAL - What is traditional cost allocation for manufacturing overhead? Give an example of… A: For ascertaining the accurate product cost or total production cost of the manufacturing… Q: A cost that would be included in product costs under both absorption costing and variable costing… A: The key difference between variable and absorption costing approaches is that while absorption… Q: The difference between marginal costing and absorption costing net income centres on how to account… A: Absorption costing means that inventory is valued at total manufacturing cost including fixed… Q: Which one of the following represents a period cost? a. Fringe benefits associated with factory… A: Cost Accounting: It is the process of collecting, recording, analyzing the cost, summarizing cost,… Q: Which one of the following represents a period cost? a. Fringe benefits associated with factory… A: Financial statements are statements which states the business activities performed by the company .… Q: Which one of the following represents a period cost? a. Fringe benefits associated with factory… A: Cost Accounting: It is the process of collecting, recording, analyzing the cost, summarizing cost,… Q: true or false. plase answer Assembly line worker’s wages is a controllable cost, product cost,… A: “Since you have asked multiple questions, we will solve the first question for you. If you want a… Q: APPLY THE CONCEPTS: Determine the total fixed cost Costs that are not tied to changes in production… A: Fixed costs are those costs which do not change with change in level of activity. For example,… Q: 24 What is Cost object in Activity based costing? a. It is an item for which cost measurement is… A: answer Q: Draw a diagram illustrating how direct. indirect, sales and administration costs contribute to the… A: Product Costs are those costs which are required to form or make or manufacture the product. There… Q: Which of the following is an example of a cost item that should be classified as an internal failure… A: This question deals with the cost of quality or quality cost. Cost of quality means a cost which is… Q: 4. S1: In activity-based costing, all manufacturing costs must be included in product costs. S2:… A: Hi Student Since there are multiple questions, we will answer only first question. Knowledge Booster Learn more about Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below. Recommended textbooks for you FINANCIAL ACCOUNTING ISBN:9781259964947 Author:Libby Publisher:MCG Accounting ISBN:9781337272094 Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E. Publisher:Cengage Learning, Accounting Information Systems ISBN:9781337619202 Author:Hall, James A. Publisher:Cengage Learning, Horngren's Cost Accounting: A Managerial Emphasis... ISBN:9780134475585 Author:Srikant M. Datar, Madhav V. Rajan Publisher:PEARSON Intermediate Accounting ISBN:9781259722660 Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas Publisher:McGraw-Hill Education Financial and Managerial Accounting ISBN:9781259726705 Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles Publisher:McGraw-Hill Education FINANCIAL ACCOUNTING ISBN:9781259964947 Author:Libby Publisher:MCG Accounting ISBN:9781337272094 Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E. Publisher:Cengage Learning, Accounting Information Systems ISBN:9781337619202 Author:Hall, James A. Publisher:Cengage Learning, Horngren's Cost Accounting: A Managerial Emphasis... ISBN:9780134475585 Author:Srikant M. Datar, Madhav V. Rajan Publisher:PEARSON Intermediate Accounting ISBN:9781259722660 Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas Publisher:McGraw-Hill Education Financial and Managerial Accounting ISBN:9781259726705 Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles Publisher:McGraw-Hill Education What is the difference between direct and indirect costs quizlet?Direct costs are incurred for the sole benefit of a particular operating unit or department. Indirect costs are incurred for the overall operation and not just for one particular unit or department.
What does direct cost include?What are direct costs? Direct costs are expenses that a company can easily connect to a specific “cost object,” which may be a product, department or project. This category can include software, equipment and raw materials. It can also include labor, assuming the labor is specific to the product, department or project.
Which of the following is not a period cost?Answer and Explanation: The correct answer is C) Cost of Goods Sold.
Which of the following costs is classified as both a prime cost and a conversion cost?Explanation: Direct Labor is both a prime cost and a conversion cost. Prime cost relates to costs that are directly attributable to the manufacturing of products and includes direct materials and direct labor.
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