Final answer:
Answer c) is incorrect because manufacturing overhead costs cannot be directly traced to specific units of product. These costs are allocated based on a predetermined overhead rate and include indirect labor and other indirect production costs, such as factory utilities.
Step-by-step explanation:
The correct answer to the question “Which of the following statements about manufacturing overhead costs is not correct?” is c) It is directly traced to specific units of product. Manufacturing overhead costs include all indirect expenses related to the production process that cannot be directly attributed to specific product units. These costs typically consist of indirect materials, indirect labor such as supervisors and managers, and other indirect costs like factory utilities and rent. However, these overhead costs are allocated to the cost of products based on a predetermined overhead rate, rather than being directly traced to specific units.
Manufacturing overhead costs are part of total production costs alongside direct materials and direct labor. Direct costs like raw materials and direct labor are variable costs that vary with the level of output since more production requires more materials and labor hours. In contrast, fixed costs, such as rent on a factory building, are not affected by production levels in the short term. Manufacturing overhead often includes both variable and fixed components.