Question

Soles is a footwear company which has recently set up its store in Ambrosia. To manufacture its products, Soles incurs a range of different costs. Which of the following would be an example of an indirect cost?
a. Salary paid to factory workers
b. Cost of leather used to manufacture shoes
c. Electricity used to run its factories
d. Cost of machines to produce shoes

Answer 1

Answer:

c. Electricity used to run its factories

Explanation:

Indirect costs are expenses that cannot be assigned to a particular project or item exclusively. They are associated with various activities in an organization or a project. Indirect costs will mostly comprise overheads or fixed costs.  Unlike direct cost that can be attached to a specific item, indirect costs are the general expenses.

The cost of electricity used to run factories cannot be associated with the store in Ambrosia solely. It may include costs from other centers or factories. The other option which consists of the cost of machines, cost of leather and salary for factory workers are directly related to shoe production.