- 1 Marks
Question
Which of the following statements is NOT correct in the relationship between direct and variable costs?
A. Direct costs and variable costs are one and the same
B. Direct costs can be directly traced to a product while variable costs vary with the level of production output
C. Direct costs are traceable to cost objects, e.g. goods or services, departments or projects while all variable costs are not necessarily traceable
D. Direct costs may include fixed and variable costs
E. Both direct costs and variable costs are traceable to production
Answer
A. Direct costs and variable costs are one and the same
Explanation: The answer is correct because direct costs and variable costs are not the same. While variable costs fluctuate with the level of production, direct costs can either be variable or fixed. Direct costs are specifically traceable to a product, project, or department, but not all variable costs are direct costs. Hence, the statement “Direct costs and variable costs are one and the same” is incorrect.
- Tags: Direct Costs, Variable Costs
- Level: Level 1
- Topic: Cost Classifications
- Series: MAY 2018
- Uploader: Theophilus