Chapter 18, Problem 3QS

To determine

Introduction:

Direct and Indirect Costs:

Direct Costs:

The cost which is easily traceable to a specific cost object and are not limited to the direct materials used or direct labor involved in the production process refers to direct cost. In other words, the costs that are directly related to the process of production is direct cost. Examples of direct costs are direct materials, direct labor and direct expenses that are directly attributable to a particular product such as rent paid for equipment, insurance paid for raw materials etc.

Indirect Costs:

The cost that is not easily traceable or assigned to a specific product refers to indirect costs. Indirect costs is associated more with the operating activities of the company and not limited to the production process. Examples of indirect costs include selling and distribution expenses, office maintenance, electricity and utilities etc.

To state:

The classification of cost whether direct or indirect based on the description of product costs for the production of sports equipment by Diez Company.