Exam

Answer 1)

Direct Cost

Direct costs are charged to the appropriate programs, while direct and indirect support charges are distributed for support service programs to various user programs. These accounting procedures provide the means for assessing the fiscal impact of operating such programs. This section will cover the differences between the charges and methods of accounting for them. Direct costs are expenses that can be separately identified and charged as part of the cost of a product, service, or department. Typical direct costs include items such as instructional and other program materials printed in the district print shop, fuel, oil and repairs of district vehicles not used for home-to-school transportation, centralized data processing services, in-house equipment repairs, and field trips.

The direct cost associated with the project is as follows:

1.Project and Plant Management

2.Equipment

3.Ancillary Equipment (cranes, fridges)

4.Equipment Installation

5.Training

6.Technical Support

7.Information System

Another direct cost is often the type of cost that the firm would normally charge as an indirect cost, but the proposed contract requires a large, unusual, or one-time expenditure (e.g., special tooling) that will benefit only the proposed contract. It would be unreasonable to expect the rest of the firm's products to share these unique costs. Costs may be treated as other direct costs to assure that they will receive proper treatment. For example, special tooling bought to complete a specific Government contract will normally become Government property. That property may then be furnished to that firm or other firms for similar contracts.

Indirect Cost

Indirect costs are those costs that cannot be directly charged to a particular program, but are attributed to services, which are necessary to operate the program. Such services include, but are not limited to, accounting, budgeting, payroll preparation, personnel management, and purchasing, warehousing and centralized data processing. The amount of allowable indirect costs charged to a grant or entitlement program is determined by actual expenditures during a fiscal year, not by the entitlement.

The total cost of a product can be segregated into two broad components: fixed costs and variable costs. Unlike fixed costs, which are constant for a given time period, variable costs change proportionally to the volume of the production units. Variable costs can be defined as those costs that vary in direct proportion to the quantity of output. Such a classification of cost is done in a marginal costing system where costs are segregated into fixed and variable costs to compute the break-even point (level of operation where there is no profit and no loss) and margin of safety (the actual level of production less the break-even point). Variable costs can be labor costs, material costs, or overhead costs. Material costs and direct labor costs (those labor costs that are directly related to production) are variable costs as these costs vary directly with output. Examples of variable costs are packaging material costs, fuel cost for a transport company, and so forth. Variable cost is not the same for all firms in an industry. It depends on many factors such as size of the firm (large firms may have ...