Question

Select the correct indirect expense item to be allocated from the drop-down menu.

a) Manufacturing costs
b) Administrative costs
c) Direct labor
d) Marketing expenses

Answer 1

The correct indirect expense item to be allocated is Administrative costs. Indirect expenses are costs that cannot be directly traced to the production of a specific product, but are necessary for the overall operation of the business.

Step-by-step explanation:

The correct indirect expense item to be allocated is b) Administrative costs.

Indirect expenses are costs that cannot be directly traced to the production of a specific product, but are necessary for the overall operation of the business. Administrative costs include expenses related to management, office supplies, utilities, salaries of non-production staff, and other general expenses that support the administrative functions of the business.

For example, the salaries of the company's HR team, the cost of office supplies, and the utility bills for the office space are considered administrative costs. These costs do not vary with the level of production and therefore, fall under the category of indirect expenses.