Commercial Applications
Assertion (A): Indirect costs are always fixed costs.
Reason (R): Indirect costs are expenses that cannot be directly attributed to a specific cost object.
- A is true but R is false
- A is false but R is true
- Both A and R are true and R explains A.
- Both A and R are true but R does not explain A.
Answer
A is false but R is true
Reason — The Assertion is FALSE because indirect costs are NOT always fixed. Indirect costs can be variable too — for example, indirect materials like grease, oil and consumable stores tend to vary with the level of production. The classification of cost as "direct/indirect" is based on traceability, while "fixed/variable" is based on behaviour; these are two independent classifications. The Reason is TRUE because indirect costs are indeed expenses which cannot be directly identified with a specific cost object (product, job or department).
Related Questions
The term "variable costs" refers to ……………
- All costs that are likely to respond to the amount of attention devoted to them by a specific manager.
- All costs associated with marketing, shipping, warehousing, and billing activities.
- All costs that do not change in total for a given period of time and relevant range but become progressively smaller on a per unit basis as volume increases.
- All manufacturing costs incurred to produce units of output.
Variable costs per unit decrease as the level of production increases.
- True
- False
Assertion (A): Indirect costs can be traced directly to a specific product or service.
Reason (R): Indirect costs are typically overheads that benefit multiple products or services.
Which of the following is correct?
- Both A and R are true, and R explains A.
- Both A and R are true, but R does not explain A.
- A is true, but R is false.
- A is false, but R is true.
Total variable cost per unit increases ……………
- When production grows
- When demand decreases
- Change in government rules
- Change in availability of raw material