Question

Direct costs

a) are incurred for the benefit of the business as a whole.
b) would continue even if a particular product were discontinued.
c) are those costs that can be easily and accurately traced to a cost object.
d) can be assigned to products only by a process of allocation.

Answer 1

Direct costs are those that can be easily and accurately traced to a cost object, unlike fixed costs which are sunk costs, and variable costs which show diminishing marginal returns. These concepts are essential for cost management in businesses. Option C is correct.

Step-by-step explanation:

The student's question regards the concept of direct costs, which are important in the field of accounting and business management. Direct costs are defined as costs that can be easily and accurately traced to a cost object, which could be a product, project, or department. Conversely, explicit costs are actual payments such as wages and rent, while implicit costs are not direct payments but represent the opportunity cost of utilizing the firm's own resources, like the use of space in a home for business purposes or the owner's time without a formal salary. Understanding these types of costs within the broader categories of fixed costs and variable costs is paramount for making informed economic decisions and cost management.

In the given question, the correct option for direct costs is (c) they are those costs that can be easily and accurately traced to a cost object. This is because direct costs are linked directly to the production of specific goods or services and vary depending on the level of production.