Question

What cost term best fits the following​ descriptions? Choose from the following list of​ terms: direct​ cost, indirect​ cost, cost​ object, trace,​ allocate, and assign. Terms may be used more than once.

What cost term best fits the following descriptions? Choose from the following list of terms: direct cost, indirect cost, cost object, trace, allocate, and assign. Terms may be used more than once. cost object a Anything for which a manager would like to know the cost b. A cost that can be traced to a cost object A general term for attaching any type of cost to a cost object d. A cost that is related to a cost object, but can't be traced to it e. The method of assigning costs that results in a less precise cost figure 1. A cost that is readily associated with a cost object

Answer 1

Answer

a.	Anything for which a manager would like to know the cost	Cost object
b.	A cost that can be traced to a cost object	Direct cost
c.	A general term for attaching any type of cost to a cost object	Assign
d.	A cost that is related to a cost object, but can’t be traced to it	Indirect cost
e.	The method of assigning costs that results in a less precise cost figure	Allocate
f.	The cost that is readily associated with a cost object	Direct cost

Explanation

a. A cost object is any item for which costs are being separately assigned or measured such as a product, a service or a department.

b. A direct cost is a price that can be directly associated with the production of specific goods or services. A direct cost can be traced to the cost object, which can be a product, service or a department.

c. Assigning cost is the procedures by which direct or indirect costs are charged to a particular product or a service provided by the entity.

d. Indirect costs are costs that are not directly assigned to a cost object. Indirect costs include administration cost, rent, utilities etc. These cannot be traced directly to a product or a service.

e. Cost allocation is the assigning of a cost to several cost objects such as products, services or departments. As the cost is not directly traceable to a specific object, the resulting allocation is somewhat arbitrary(less precise). Hence, cost allocation is sometimes called as the spreading of a cost.

f. A direct cost is a price that can be directly associated with the production of specific goods or services.