Select the correct statement from the following.
A) The allocation base determines whether a cost is classified as direct or indirect.
B) The same cost cannot be classified as both direct and indirect.
C) Relevant costs can include direct and indirect costs.
D) Direct costs always display a variable behavior pattern.

Question

Quizplus · Accepted Answer

Relevant costs include both direct and indirect costs. Direct costs are typically traceable to a specific cost object or product, while indirect costs are not easily traceable and may need to be allocated to cost objects using an allocation base. However, both types of costs can be relevant to decision-making and should be considered in cost analysis. Choice A is incorrect because the allocation base is used to allocate indirect costs, not to determine whether a cost is direct or indirect. Choice B is incorrect because a cost can be classified as both direct and indirect, depending on the level of analysis. Choice D is incorrect because direct costs can exhibit both variable and fixed behavior patterns.

Select the Correct Statement from the Following