Question

(A) Briefly differentiate between Direct Costs and Indirect costs in total Product Cost determination in business Give examples if possible ​

Answer 1

Variable costs are those costs that vary with traffic volume. Variable costs are expenses that change directly and proportionally to the changes in business activity or volume.

e.g. Raw materials, Labour,Commission

Fixed costs are those costs that do not vary with traffic volume. Fixed costs are expenses that remain constant irrespective of the level of output.

e.g. Lease and Rental payments, Salaries, Loan payments.

B.) Direct costs are expenses that directly go into producing goods or providing services.

e.g. Labour, Material, Commission, Wages

Indirect costs are business expenses that keep you operating.

e.g. Rent, Utilities

C.) e.g. Electricity. Cost of electricity is an indirect cost since it can't be tied to a particular product or a particular machine. It is Variable because it's usage increases or decreases with the increase or decrease in the number of goods produced.

D.) e.g. Rent payment that are tied to a production facility. Costs that are incurred by and solely for a particular product and which do not vary with activity