Which of the following is not true of direct costs?
A) Direct costs are normally the major portion of product or service costs
B) Direct costs are usually easily traceable
C) Direct costs generally serve as the basis for allocation of supplier overhead costs
D) Direct costs can vary a great deal depending upon the overhead allocation basis
E) A tiny reduction in direct costs is often worth more to the buying firm than a major reduction in the percentage of profit

Question

Quizplus · Accepted Answer

Direct costs are usually easily traceable and serve as the basis for allocation of supplier overhead costs, but they do not vary a great deal depending upon the overhead allocation basis. This statement is true of indirect costs, which can vary depending on the allocation method chosen. A tiny reduction in direct costs may be significant for profitability, but it is not relevant to the statement about overhead allocation.

Which of the Following Is Not True of Direct Costs