A cost associated with a specific cost object that is not feasible to trace in an economically viable way is called __________?
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Answer: A. indirect cost
Explanation
An indirect cost cannot be economically or feasibly traced to a specific cost object. Because tracking the exact consumption for every individual unit is impractical, companies allocate these expenses instead. Thus, the lack of economical traceability defines an indirect cost. Cost objects can be products, services, departments, or customer projects assigned in accounting systems. Direct costs are easily traced to a single object, whereas indirect costs benefit multiple objects simultaneously. Factory lighting, supervisory salaries, and building maintenance are classic examples.
Proper allocation of indirect costs ensures that product pricing covers all necessary operational overhead. Inaccurate indirect cost assignments can make unprofitable product lines appear lucrative. Direct costs can be conveniently and economically traced to a specific cost object. Partial and benchmark cost terms do not describe unfeasible traceability characteristics.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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