Direct and Indirect Costs

Question 1

Direct Costs definition

Answer 1

Costs that can be traced directly and practically to a particular cost objective such a product being produced, project, contract. In GE : Direct Labor or Direct Material

Question 2

Direct Labor

Answer 2

Waiges paid to the hourly workforce

Question 3

Direct Material

Answer 3

Raw materail used in the production process

Question 4

Indirect Costs

Answer 4

Costs that are incidental to and necessary for the production or the completion of a project. In GE, it refers to the manufacturing related expenses that cannot be traced directly to a particular product (depreciation of manufacturing equipment, labor costs to make production possible but not assigned to one particular product, costs electricty, paper)

Question 5

use of variable Costs and base cost split

Answer 5

Segregation of operating expenses that facilitates the calculation of the contribution margin and supports business-level profitability analysis

Question 6

Variable Costs

Answer 6

Costs that are variable with production and sales. They vary directly with the changes in volume (Sales commissions, Labor and material used in production, delivery charges)

Question 7

Base Costs

Answer 7

Costs that are not repsonsive to small volume and changes and are committed by the nature of the business (Depreciation, Facility Rent, Taxes, Manager’s salaries

Question 8

SG&A

Answer 8

Sum of selling, general and administrative expenses of a company. This is not the same as base cost, because it includes costs that are variable, such as Sales commissions, transportation