Preston Company has three divisions. The company should consider a cost to be a direct cost of a division if:

a. It meets guidelines imposed by generally accepted accounting principles.

b. It can be traced to a division in a cost-effective manner.

c. It is a variable cost.

d. It can be allocated to a division.

Question

Business

Lilia Khan

22 August, 21:45

Preston Company has three divisions. The company should consider a cost to be a direct cost of a division if:

a. It meets guidelines imposed by generally accepted accounting principles.

b. It can be traced to a division in a cost-effective manner.

c. It is a variable cost.

d. It can be allocated to a division.

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Answers (1)

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Melanie · Answer 1

b. it can be traced to a division in a cost effective manner.

Explanation:

Direct costs are those costs which can be directly attributable to a product, activity or a department. For example, direct material or direct labor are direct costs.

These refer to those costs which are incurred specifically for a product, service or incurred for a particular department. Usually such costs are variable i. e they usually vary with the level of production.

Direct costs can be specifically traced so they need not be allocated to any product or a department.