ISM Exam LEAD Topic 6 Question 5 Discussion

Actual exam question for ISM's LEAD exam

Question #: 5
Topic #: 6

A highly-customized computer part needed to complete the assembly of a product would be classified as which of the following?

AFixed cost

BTarget cost

CDirect cost

DVariable cost

Show Suggested Answer

Suggested Answer: C

Definition of Direct Cost: Direct costs are expenses that can be directly attributed to the production of a specific product or service. This includes raw materials, labor, and any other costs directly associated with manufacturing.

Highly-Customized Computer Part: The customized nature of the computer part makes it a direct cost because it is a specific component needed for the product assembly.

Relevance to Production: Since the part is essential for the assembly of the product, its cost is directly traceable to the product, fitting the definition of a direct cost.

Reference: Cost accounting literature, such as 'Cost Accounting: A Managerial Emphasis' by Charles T. Horngren, defines and discusses the classification of direct costs and their importance in product costing.

by Jesusita at Jul 15, 2024, 07:18 PM

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Na

4 months ago

This question is as tricky as trying to assemble a computer with oven mitts on. I'm stumped, but I'll go with C) Direct cost for now.

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Fannie

3 months ago

I agree with you, C) Direct cost seems like the best choice.

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Trevor

3 months ago

I'm leaning towards D) Variable cost.

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Helaine

3 months ago

I think it might be B) Target cost.

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Macy

4 months ago

I think it could also be D) Variable cost, depending on how the cost changes with the quantity produced.

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Brynn

4 months ago

But the customized part is directly related to the product, so it should be a direct cost.

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Frank

4 months ago

I'm going with A) Fixed cost. Once the part is purchased, the cost doesn't change, so it's a fixed expense for the company.

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Tamie

3 months ago

I believe it's D) Variable cost because the cost can change depending on the quantity of parts needed.

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Leota

3 months ago

I agree with A) Fixed cost, once the part is purchased, the cost remains the same.

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Adaline

3 months ago

I would go with B) Target cost because it's a specific cost set as a goal for the product assembly.

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Sena

4 months ago

I think it's C) Direct cost because it's directly related to the production of the product.

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Alesia

5 months ago

D) Variable cost makes the most sense to me. The cost of this part can fluctuate based on demand and supply, so it's a variable expense.

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Carmen

5 months ago

Hmm, I'd say B) Target cost. The company probably set a target cost for this specialized part to keep the overall product cost in check.

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Tequila

4 months ago

I see your point, but I'm leaning towards D) Variable cost since the cost may change depending on the quantity produced.

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Cristy

4 months ago

I agree with you, but I still think it's B) Target cost because they probably had a specific cost in mind for that part.

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Gwenn

4 months ago

I think it's C) Direct cost because it's directly related to the production of the product.

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Margarett

5 months ago

I think the correct answer is C) Direct cost. The highly-customized part is directly associated with the production of the product, so it should be considered a direct cost.

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