International Association of Accessibility Professionals (IAAP) Certified Administrative Professional (CAP) Practice Exam

What are the direct costs incurred in producing goods called?

1. Cost of services

2. Cost of benefits

3. Cost of goods

4. Cost of production

The correct answer is: Cost of goods

The term that specifically refers to the direct costs incurred in producing goods is known as the Cost of Goods. This encompasses the expenses that are directly tied to the manufacturing process, such as raw materials and labor directly involved in production. Accurately identifying these costs is crucial for businesses as they help determine the overall profitability of products and inform pricing strategies. The other options do not fit this definition as clearly. The Cost of Services pertains to expenses associated with providing services rather than tangible goods. Cost of Benefits generally refers to various employee compensation packages and incentives, which do not relate to goods production. Cost of Production can sometimes be used broadly to include various expenses, but it may encompass both direct and indirect costs, which dilutes its specificity compared to Cost of Goods. In summary, the term Cost of Goods precisely captures the essence of direct production costs.