Final answer:
A direct cost is one that can be economically identified with the production of specific goods or services. It is an expense directly tied to product or service creation, such as wages for labor or materials required for production.
Step-by-step explanation:
A direct cost is a type of expense that can be directly tied to the production of specific goods or services. Within the context of business expenses, explicit costs and implicit costs are two primary categories. Explicit costs are straightforward, out-of-pocket payments, such as wages and rent. Implicit costs, on the other hand, include opportunity costs associated with using resources the firm already owns, like using the owner's property as a store without formal rent. When identifying a direct cost, it is important to consider that implicit costs, although real, are not conventionally treated as direct costs because they are not out-of-pocket expenditures.
Regarding the choices provided, a direct cost:
- (a) can sometimes be incurred as a direct consequence of a decision,
- (b) can be economically identified with the item being costed — this is the most fitting description for a direct cost,
- (c) can, in fact, be economically identified with the item being costed, which nullifies this option,
- (d) may or may not be immediately controllable,
- (e) may be overseen by the board of directors but is not exclusively their responsibility.