Question

A partial list of the costs for Wisconsin and Minnesota Railroad, a short hauler of freight, follows. Classify each cost as either indirect or direct. For purposes of classifying each cost, use the train as the cost object.

Costs	Classification
a. Cost to lease (rent) railroad cars
b. Cost of track and bed (ballast) replacement
c. Diesel fuel costs
d. Cost to lease (rent) train locomotives
e. Depreciation of terminal facilities
f. Maintenance costs of right of way, bridges, and buildings
g. Salaries of dispatching and communications personnel
h. Headquarters information technology support staff salaries
i. Safety training costs
j. Wages of train engineers
k. Wages of switch and classification yard personnel
l. Costs of accident cleanup

Answer 1

Solution: Meaning of Direct Cost: Direct cost is completely atributed to the production of specific goods or services. It is directly related to the service or product. It includes Materials, Labour and other expenses which are directly atributed to the product or service. Meaning of Indirect Cost : Indirect cost is not directly atributable to the specific product or service rendered. Like expenses of supervision and depreciation are examples of indirect cost. Indirect cost includes Material, labour and expenses which are not directly related to the product or service. Cost Classification A. Cost to lease railroad cars Direct B. Cost of track and bed (ballast) replacement Indirect C. Diesel fuel cost Direct D. Cost to lease (rent) train locomotives Direct E. Depreciation of terminal facilities Indirect F. Maintenance costs of right of the way , bridges and buildings. Indirect G. Salaries of dispatching and communications personnel Indirect H. Headquarters information technology support staff salaries Indirect
I. Safety trainig costs Indirect J. Wages of train engineers Direct K. Wages of switch and classification yard personnel Indirect L. Costs of accident cleanup Indirect