Note: Please be sure to remind us who your employer is. If you are not currently

Question

Note: Please be sure to remind us who your employer is. If you are not currently working, please answer the question based on a prior job. 1. In your workplace, give a good example of a direct cost? An indirect cost? Please provide an explanation of why your example fits the definition. 2. Does your organization use responsibility centers? Please explain. Note: Many students are confused by the term 'responsibility center'. A responsibility center is a segment of an organization and is accountable for its own financial performance -- A responsibility center is not a person or group of people that are responsible for overseeing the organization/department. A 'responsibility center' is a financial concept and should not be confused with the term 'responsible parties' which is a management concept. An example of a responsibility center would be something like the Emergency Department of a hospital. A responsible party would be someone like a manager or a CEO that makes decisions and oversees the operations of the organization.

Explanation / Answer

Direct costs are those costs that can be easily traced to a product or service. For example, the cost of materials used to manufacture a product is direct cost. Indirect costs are those costs that cannot be easily traced to a product of service. For example, salary of a factory supervisor is indirect cost.

Employer: Chose any manufacturing company. An automobile company

Example of direct cost: The materials used in to manufacture the product produced by that company. If the company manufactures car, the cost of paint would be a direct cost as it can be directly associated with the crs manufactured.

Example of indirect cost: Any cost incurred that cannot be directly traced to the product manufactured by that company. If the company manufactures car, the salary of factory supervisor would be indirect cost as it cannot be directly associated with the cars being manufactured.

Responsibility center for an atomobile compnay would be manufacturing unit of the company set up at any location that is responsible for making required investments and to generate revenues by those investments.

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