Which type of costs are directly linked to the production of a specific product?

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

Answer: (B)

Costs that are directly tied to making a specific product are those that can be traced straight to that product. These are the direct costs, such as the raw materials and the labor used specifically to manufacture that item. They vary with the level of production and disappear if production stops, because they are created for the purpose of that product. Fixed costs, by contrast, stay the same regardless of how much you produce (rent, salaries), so they aren’t linked to a single product. Indirect costs or overhead can’t be traced to one product and must be allocated across many products, so they aren’t directly tied to production of a specific item either. Cost centers are organizational units used to collect and manage costs, not a type of cost. So the costs directly linked to the production of a specific product are direct costs.