Due Date: May 12, 2010 Marks : 02

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Question : A cost may be direct cost as well as indirect cost at the same time. Explain with arguments, whether you agree with the statement or not?”

Answer : Agreed with the argument that, under certain circumstances some specific cost can be considered as Direct as well as Indirect also. Person has to first identify the reasons of resistance towards the identification of the cost.
For example a marble factory may produce dozens of verities of items. The factory manager's salary would be an indirect cost of a particular verity, such as marble lamps. The reason is that the factory manager's salary is not caused by any one variety of marble items.
To be traced to a cost object such as a particular product / service, the cost must be caused by that cost object. The salary of manger is a cost that is incurred to support a number of costing objects but cannot be traced to them individually. The cost may be direct or indirect, depending on the cost object. While, in the above example, the marble factory manager's salary is an indirect cost for manufacturing marble items, but at the same time it is a direct cost for the manufacturing division. In the first case, the cost object is the marble product while in the second case the cost object is the entire manufacturing division.
To conclude the result we must need to understand that the cost object and its nature which in actuality is the basis of identification of the nature of the cost either Direct or Indirect.