Question
Raw material is an example of a direct cost. square is an example of a fixed cost. [Select] Raw material Rent
Answer
4.3
(309 Votes)
Meryl
Elite · Tutor for 8 years
Answer
Rent.
Explanation
## Step 1:In cost accounting, costs are divided into two broad categories: direct and indirect costs. Direct costs are those that have direct reference and full relation to the production or manufacturing of a specific good or services, whereas indirect costs do not have a direct reference or cannot fully assign to the production of goods or services, but incurred in the performance of business as a whole. Raw materials are a prima facie example of direct costs as they have a direct contributory role in the production of goods or services. Hence, the statement mentioned in the question is correct.## Step 2:Considering the three options available for our second question, each stands for a different nature of costs. By definition, a fixed cost is one that remains unchanged and is unaffected by variations in the output or production. It maintains its value over short time periods without considering differences in business activity levels. ### Among the options presented:1. **'Raw material'**: These costs wouldn't be considered fixed because the quantity of raw materials needed fluctuates depending on output levels ─ the more the output, the more the raw materials required. 2. **'Rent'**: Rent payments are a reasonable example of a fixed cost. This is because rental costs tend to stay the same for long periods regardless of changes in the level of business activity. So, the cost of rent would still be incurred even if no production occurs within the rented property.3. **'Electricity bills'**: Electricity bills typically fluctuate—they increase/decrease depending on usage, and would thus be considered variable, rather than fixed. If production levels go down, fewer machines would be run, leading to a lower electricity bill.Hence, 'Raw material' and 'Electricity bills' are variable costs, whereas 'Rent' would fall under defined fixed costs.