Which of the following statements regarding direct and indirect costs is true?
A)Direct costs are always variable and indirect costs are always fixed.
B)Sunk costs are always direct, and opportunity costs are always fixed.
C)The distinction between a direct and indirect cost depends on the product, activity, or department to which the cost pertains.
D)If a cost is indirect to a department within a plant, it will also be indirect for the plant as a whole.

Question

Quizplus · Accepted Answer

The distinction between direct and indirect costs depends on the specific product, activity, or department being analyzed. For example, a cost may be direct for one product but indirect for another, depending on the nature of the cost and how it is allocated. Therefore, it is not accurate to say that direct costs are always variable and indirect costs are always fixed, or that sunk costs are always direct and opportunity costs are always fixed. Additionally, just because a cost is indirect for a specific department does not mean it will be indirect for the plant as a whole, as the allocation of indirect costs can change when analyzing the organization at different levels.

Which of the Following Statements Regarding Direct and Indirect Costs