Final answer:
Fuel costs for hired vehicles are recorded under cost of goods sold because they are considered a variable cost, which changes directly in proportion to the output level of goods or services.
Step-by-step explanation:
The question pertains to why fuel costs for hired vehicles are included under the cost of goods sold (COGS). The correct answer to this question is that fuel costs are considered a variable cost. This is because variable costs are those expenses that vary in direct proportion to the level of output. In businesses that require delivery or transportation services, such as a messenger company, fuel is a significant variable cost that fluctuates based on the number of deliveries or the distance covered.
As such, when the fuel costs decrease, the company can deliver its services more affordably, potentially leading to higher profits and an increase in supply. Fuel costs for hired vehicles are included in COGS because they are directly associated with the production and delivery of goods or services. As the company produces more goods or services, the need for fuel for transportation increases, hence the categorization of fuel costs as variable costs that are directly tied to the company's activity levels.