Question

Costs that cannot be directly traced to a profit center are called:

a.	variable costs.
b.	common costs.
c.	segment costs.
d.	fixed costs.

Answer 1

Solution

A traceable cost is a cost for which there is a direct, cause-and-effect relationship with a process, product, customer, geographical area, or other cost object. If the cost object goes away, then the traceable cost associated with it should also disappear.

1. Fixed costs are much less controllable than variable costs.
2. Direct fixed costs and common fixed costs must be clearly distinguished. Direct fixed costs are those fixed costs that can be identified directly with a particular segment of an organization, whereas common fixed costs are those costs that cannot be identified directly with the segment.
3. Common fixed costs should be clearly identified as unallocated in the contribution income statement by segments. Any attempt to allocate these types of costs, on some arbitrary basis, to the segments of the organization can destroy the value of responsibility accounting. It would lead to unfair evaluation of performance and misleading managerial decisions

So we can Say that common cost is not traceable to profit center