Exercise – Direct and indirect costs

Direct and Indirect Costs

Palmer Employment Training is a 2 year old company providing face to face counseling and classroom training in job seeking and job retention skills. Palmer has won two contracts with educational institutional institutions and is contemplating bidding on a Government sponsored job placement project. Palmer delivered onsite counseling services to a local college.

4. Select the types of firms below that are likely to stress the need for accurate and realistic overhead costs?

  • (a) Service firms
  • (b) Manufacturing
  • (c) Not for profits
  • (d) All of the above

With its ability to build rapport and inspire action, Palmer has enjoyed a built a quick reputation based on a high placement rate. Palmer’s leadership committee acknowledges room for improvement when it comes to cost estimation and cash management.

The company is happy with its reputation but is more focused on insuring that profits are not usurped due to inaccurate accounting of overhead costs as well as adhering to governmental standards for calculating overhead.

1. Which of the following is not an example of an indirect cost?

  • (a) Heat
  • (b) Benefits
  • (c) Wages
  • (d) Light

2. Which of the following are concepts that help you arrive at accurate overhead costs?

  • (a) Cost allocation
  • (b) Fiscal immunity
  • (c) Identification of costs that contribute directly to production
  • (d) Using appropriate data and formulas to calculate the total indirect costs

3. Which of the following is an example of direct costs?

  • (a) Administration
  • (b) Taxes
  • (c) Salaries
  • (d) Materials

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Tim Friesner

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