Question

If each car requires a belt that costs $20 and 2,000 cars are produced for the period, then the total cost for belts is:

a) Considered to be a direct fixed cost
b) Considered to be a direct variable cost
c) Considered to be an indirect fixed cost
d) Considered to be an indirect variable cost
e) None of the above

Answer 1

b) Considered to be a direct variable cost

Step-by-step explanation:

Direct costs are expenditures that can be traced to a specific product, project, or service. It is a cost component that arises due to the production of a particular good or service as opposed to a general expense. Direct costs contrast indirect cost that covers a variety of items, such as administration.

Variable costs are the expenses that change with production volume. An increase in production leads to an increase in variable costs. Variable costs, therefore, have a direct relationship with the output level.

Belts, in this case, are a direct variable cost because

1. The belt expense is traceable directly to the production of cars. It is a cost incurred only when a car is being produced.
2. The cost varies with the number of cars produced. The expenses will change with changes in the production of cars.