Question

Of the following, which is not a direct fixed cost of a profit center?

Answer 1

Answer:

D. General Office Administrative Costs

Explanation:

A Profit Center

A profit center represents a business unit or department in an organisation that generates revenue, profits or losses.

A Direct Fixed Cost

A direct fixed cost represents a cost that is directly traceable to a product, a service or to a center. In this question, the consideration is to identify the option that does not represent a cost directly traceable or directly incurred by the profit center.

General Office Administrative Costs

In accounting, the rule of the thumb is that general office administrative costs are not directly attributable to the production of goods or services.  This cost represents the costs incurred to carry out a business' day to day operations including building rent, office supplies and subscriptions among others. The right option is therefore, the General Office Administrative Costs. Put differently, it represents costs that the business will incur even without the profit center, department or unit.

The other options from are costs that are directly related to the profit center and should not be incurred if the profit center does not exist. For instance, the Manager's salary will not be incurred if there is no center and there will be no depreciation on center's equipment if the center does not exist in the first place.