What is the difference between direct and indirect costs?
Direct cost can be physically identified with and/or traced to the cost object because there's a direct causal link between them
For example, direct cost for a manufactured product line, include the materials which are a part of the prod...
What is the difference between direct and indirect
costs? - answer Direct cost can be physically
identified with and/or traced to the cost object
because there's a direct causal link between them
For example, direct cost for a manufactured
product line, include the materials which are a part
of the product and labor
Indirect costs cannot be conveniently and easily
traced to each cost object
For example, indirect costs, include the machinery,
plant, and other labour necessary to manufacture
the product, but are not directly traceable to the
product, such as labour for inspection and
supervision
What is the difference between variable and fixed
costs? - answer Variable costs are those for which
total cost changes with each change in the cost
driver
, Fixed costs are the portion of total costs, which
remain constant as the cost driver changes
Are all fixed costs indirect? - answer All fixed costs
must be indirect since the increase in the cost
driver or volume of the output does not affect the
level of fixed costs. While fixed costs are indirect,
some indirect costs might be variable, but are not
considered direct because of the convenience
factor.
What does "unit cost" mean? - answer The
additional cost that is incurred as the cost driver
increases by one unit
What is relevant range and explain its use? -
answer Relevant range is used to provide a useful
range of activity for the cost driver in which it can
be assumed that variable cost will be constant per
unit of the cost driver
This is an assumption, since the behaviour of
actual cost is likely to be non-linear over the range
of the cost driver
This concept allows the management accountant to
use the concept of constant unit variable cost for a
defined range of operations, even though actual
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