Question

All of the following are true EXCEPT that indirect costs:

A) may be included in prime costs
B) are not easily traced to products or services
C) vary with the selection of the cost object
D) may be included in manufacturing overhead

Answer 1

Indirect costs are not included in manufacturing overhead, which consists of costs directly related to the production process.

Step-by-step explanation:

Indirect costs are costs that are not directly tied to the production of a specific product or service. Rather, they are costs that support the overall operations of a business. Examples of indirect costs include rent, utilities, salaries of employees not directly involved in production, and administrative expenses. These costs are not included in the calculation of manufacturing overhead, which is a specific category of costs directly related to the production process.

Manufacturing overhead includes costs such as factory rent, indirect labor, machinery maintenance, and depreciation of manufacturing equipment. These costs are incurred in the production facility and are allocated to the products being manufactured. Indirect costs, on the other hand, are not specifically tied to the production facility or the production process.

For example, let's consider a car manufacturing company. The rent for the corporate office where administrative staff work and the salaries of the administrative staff themselves would be classified as indirect costs. These costs are necessary for the overall operations of the company, but they are not directly involved in the production of cars. On the other hand, the cost of machinery maintenance in the factory and the wages of the workers involved in assembling the cars would be considered manufacturing overhead, as they are directly related to the production process.