Question

Indirect costs incurred in a manufacturing environment that cannot be traced directly to a product are treated as a.period costs and expensed when incurred b.product costs and expensed when incurred c.period costs and expensed when the goods are sold d.product costs and expensed when the goods are sold

Answer 1

Answer:

Indirect costs incurred in a manufacturing environment that cannot be traced directly to a product are treated as Product costs and expenses when the goods are sold, Option D.

Explanation:

Indirect costs are also manufacturing overheads which cannot be directly put on the product but they have to be allocated in some way. So, these are treated as 'product costs' and 'expenses' when the goods are sold. They are not period costs as per Option A and option C. Option B which says that it is product costs when incurred, which is also incorrect.

Examples of indirect costs can be accounting and legal expenses, rent, telephone expenses, salaries of administrative.

Direct costs includes the costs of direct 'labor', materials and commissions.