ISM LEAD Exam - 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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Gail

8 months ago

Not so sure about that... could be classified differently.

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Tamie

9 months ago

Agree, direct cost makes the most sense here.

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Stephaine

9 months ago

Wait, isn't it a fixed cost since it's specific?

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Norah

9 months ago

I think it's more of a variable cost.

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Graciela

9 months ago

Definitely a direct cost!

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Bettina

9 months ago

I’m confused about whether to choose B, Target cost, since that relates more to pricing strategies than to specific parts.

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Lashawnda

10 months ago

This question feels similar to one we did in practice about cost classifications. I think it could also be A, Fixed cost, but I’m leaning towards C.

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Glennis

10 months ago

I'm not entirely sure, but I remember something about fixed costs being more general expenses, so that might not fit here.

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Arminda

10 months ago

I think the answer might be C, Direct cost, since it's specifically tied to the production of that product.

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Malcom

10 months ago

I think the key here is that the part is "highly-customized." That suggests it's not a standard, interchangeable component, so it's likely a direct cost rather than a variable or fixed cost. I'll go with option C.

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Winfred

10 months ago

Wait, is a highly-customized part considered a variable cost since the cost changes based on the number of units produced? Or is it a fixed cost since the part itself has a set price? I'm a bit confused on how to classify this.

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Jules

10 months ago

Okay, I've got this. A highly-customized part would be a direct cost, since it's specifically tied to the production of the product. I'm confident that's the right answer.

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Lasandra

10 months ago

Hmm, I'm a little unsure about the difference between fixed and variable costs here. I'll need to review my notes to make sure I understand the concepts before answering.

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Yaeko

10 months ago

This looks like a straightforward cost accounting question. I'll think through the definitions of the different cost types and see which one best fits the description of a highly-customized computer part.

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Aileen

10 months ago

I feel pretty good about this question. The program manager has already presented the realized benefits, so the next logical step is to begin transitioning the program resources and updating the plans accordingly. I'll go with option A.

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Jani

10 months ago

Making the classroom available outside of class time is a good option, but I'm not sure if that's the most efficient solution. I'll have to weigh the pros and cons.

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Na

2 years 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

2 years ago

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

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Trevor

2 years ago

I'm leaning towards D) Variable cost.

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Helaine

2 years ago

I think it might be B) Target cost.

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Macy

2 years 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

2 years ago

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

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Frank

2 years 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

2 years 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

2 years ago

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

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Adaline

2 years 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

2 years ago

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

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Alesia

2 years 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

2 years 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

2 years 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

2 years 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

2 years ago

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

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Margarett

2 years 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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