Question

Which of the following statements is true?-direct costs can easily be traced to a cost object; indirect costs cannot be-both direct and indirect costs can easily be traced to a cost object-neither direct nor indirect costs are easily traced to a cost object-indirect costs can be traced easily to a cost object, but direct costs cannot be

Answer 1

Answer: Statement A

Explanation: Direct cost are those costs which are variable in nature and can be allocated to the total units of output produced, these are easily traceable. Examples - direct material, direct labor and piece rate wages etc.

Indirect costs are those cost which cannot be allocated to the number of units produced on individual basis unlike direct cost these costs can be either fixed or variable in nature. Examples - rent expenses, administrative expenses.

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From the above explanation we can conclude that statement A is correct.