Which type of costs cannot be directly traced to a single product and must be allocated to multiple cost objects?

• A. Direct costs
• B. Variable costs
• C. Fixed costs
• D. Indirect costs

Answer: (D)

Costs that cannot be traced to a single product are overhead or indirect costs. These arise from resources that support many products—like utilities, depreciation, and salaries of supervisors—which can’t be linked to one unit without arbitrary measurement. Because there isn’t a direct, exclusive qualifier tying them to one product, they must be allocated across multiple cost objects using a chosen driver (such as machine hours, labor hours, or square footage). This allocation spreads the shared costs fairly across all products that use the same facilities or resources. In contrast, direct costs can be traced straight to a specific product, such as raw materials or direct labor, so they aren’t allocated.