Understanding Direct and Indirect Costs

What is a direct cost?

• A cost that cannot be directly linked to a product

• A cost associated with overheads

• A cost directly tied to the production of a product or service

• A cost related to administrative expenses

Which of the following is an example of direct material?

• Cheese used in a pizza

• Supervisor's salary

• Lubricants for machinery

• Factory rent

What is an indirect cost?

• A cost related to direct materials

• A cost associated with direct labor

• A cost that cannot be directly identified with a specific product

• A cost that is directly involved in making a product

Which of the following is considered an indirect labor cost?

• A technician operating machinery

• A chef preparing a meal

• A cleaner maintaining hygiene standards

• A worker assembling a product

In the cost classification exercise, what type of cost is the purchase of cheese?

• Direct labor

• Indirect material

• Direct material

• Indirect expense