Which of the following would be classified as an indirect cost when assigning costs to a particular department of a large retail sales store?

Which of the following would be classified as an indirect cost when assigning costs to a particular department of a large retail sales store?

Multiple Choice

• sales commissions
• cost of goods sold
• utility costs

  Correct
• depreciation on cash registers

Explanation

Determining the cost of the amount of electricity consumed by each department would require power meters to be installed in each department. The cost of doing this would not likely be justified by the benefit attained. Therefore utility costs are usually treated as indirect costs.

Of the following statements, which is NOT true concerning indirect costs?

Multiple Choice

• Indirect costs may also be called overhead costs.
• An indirect cost is a cost that cannot easily be traced to a cost object.
• A cost that could be directly traced may still be treated as an indirect cost.
• An indirect cost may be fixed but cannot be variable.

  Correct

Explanation

Indirect costs can be fixed or variable

The process of assigning costs to two or more cost objects requires

Multiple Choice

• cost tracing.
• cost allocation.
• cost/benefit analysis.
• all of the above.

  Correct

Explanation

The answer is self-explanatory.

As a result of the cost/benefit concept, a cost that could be traced directly to a cost object may still be treated as an indirect cost. This statement is

Multiple Choice

• true.

  Correct
• false.

Explanation

Many costs that can be traced directly are treated as indirect cost because directly tracing the cost is not worth the effort necessary to do the tracing. For example, a furniture manufacturer could count the drops of glue used to produce each piece of furniture. However, there is no benefit in knowing that a few drops more or less of glue were used on one piece of furniture versus another piece. As a result glue and other minor supplies are frequently treated as indirect cost rather than expending the effort necessary to directly trace their use to each individual product.

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