Preston Company has three divisions.The company should consider a cost to be a direct cost of a division if:
A) It meets guidelines imposed by generally accepted accounting principles.
B) It can be traced to a division in a cost-effective manner.
C) It is a variable cost.
D) It can be allocated to a division.

Question

Quizplus · Accepted Answer

A cost is considered a direct cost of a division if it can be traced to that division in a cost-effective manner. Direct costs are generally more easily identified and allocated to a specific division, while indirect costs are allocated to divisions through a cost allocation process. While it is important for costs to adhere to generally accepted accounting principles, this alone does not determine whether a cost is a direct cost of a division. Variable costs also do not necessarily indicate whether a cost is a direct cost of a division.

Preston Company Has Three Divisions