Understanding Direct and Indirect Costs

What is a direct cost?

• A cost related to administrative expenses

• A cost directly identified with making a product or service

• A cost associated with overheads

• A cost that cannot be directly linked to a product

Which of the following is an example of direct labor?

• The accountant managing finances

• The supervisor overseeing production

• The person cleaning the kitchen

• The person making the pizza

What is an indirect cost?

• A cost that cannot be directly identified with a product or service

• A cost associated with direct materials

• A cost that is directly linked to a product

• A cost related to direct labor

Which of the following is considered an indirect material?

• Lubricants for machinery

• Bread for a sandwich

• Cheese used in a sandwich

• Tomato base for a pizza

In the cost classification exercise, what is the classification of factory rent?

• Indirect expense

• Direct labor

• Indirect labor

• Direct material