Which costs do not directly link to the production or sale of a specific product and are also known as overheads?

• A. Fixed Costs
• B. Direct Costs
• C. Cost Centers
• D. Indirect Costs

Answer: (D)

The key idea is that overheads are indirect costs. They are costs that support production or running the business but can’t be traced to a specific product. Think of things like rent for the factory, utilities, depreciation, or salaries of supervisors—these exist for the whole operation and would still be incurred even if a particular product isn’t being made. Because they can’t be tied directly to one product, they’re considered indirect costs. Direct costs, by contrast, are those you can trace to a specific product, like materials and direct labor. Cost centers are units used to collect costs, not a type of cost itself. So the costs described are indirect costs, i.e., overheads.