Question

A facility charge recovers mostly what kind of cost? A volume charge recovers mostly what kind of cost? What is meant by indirect costs? Which type of charge—facility or volume—will include indirect costs?

Answer 1

Facility charge:

This is an indirect cost, since the cost is not directly associated with production units or volumes. Example of this kind of cost is water utility expense, which is not increased or decreased by the change in production units.

Volume charge:

This is a direct cost, since such cost is directly attributable with production units. Example of this cost is direct material cost, which increases as the volume of production increases.

Indirect cost means overhead expense, which is necessary but doesn’t depend on production or service units.

Yeas, it includes indirect cost for facility and direct cost for volume.