Question

Consider the following two statements regarding cost classification:

Assertion (A): Indirect costs can be traced directly to a specific product or service.

Reason (R): Indirect costs are typically overheads that benefit multiple products or services.

Which of the following is correct?

Options

• Both A and R are true, and R explains A.

• Both A and R are true, but R does not explain A.

• A is true, but R is false.

• A is false, but R is true.

Answer 1

A is false, but R is true.

Explanation:

The assertion is false because indirect costs cannot be directly or easily connected to a specific product or service in an economically viable manner. The reason is true because indirect costs are aggregate overheads such as factory rent, utilities, or administrative salaries that support and benefit various products, departments, or services within the firm.