Which of the Following Statements Concerning Direct and Indirect Costs

question 185

Multiple Choice

Which of the following statements concerning direct and indirect costs is NOT true?

• A) Whether a particular cost is classified as direct or indirect does not depend on the cost object.
• B) A direct cost is one that can be easily traced to the particular cost object.
• C) The factory manager's salary would be classified as an indirect cost of producing one unit of product.
• D) A particular cost may be direct or indirect, depending on the cost object.

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Definitions:

Net Present Value Method

A method of evaluating investments by calculating the present value of expected future cash flows, subtracting the initial investment.

Internal Rate of Return Method

A capital budgeting technique used to evaluate and compare the profitability of investments, calculating the interest rate at which the net present value of costs equals the net present value of benefits.

Capital Rationing

The process of selecting the most profitable projects to invest in when a company has a limited amount of capital.

Capital Outlay

Expenditures for acquiring fixed assets or adding to the value of an existing fixed asset with a useful life extending beyond the taxable year.