Illustrate with examples how cost definitions are independent and context sensitive. In other words, indicate how a cost can be classified as fixed or variable and direct or indirect, depending on the situation.
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The definitions for direct and indirect costs are independent of the definitions for fixed and variable costs. For example, both the cost of goods sold and the cost of supplies are variable in relation to sales volume but cost of goods sold would be classified as a direct cost while supplies would be considered an indirect cost. As another example, the cost of rent and depreciation are both fixed in relation to sales volume, but the cost of rent may be classified as an indirect cost while the cost of depreciation may be classified as a direct cost. An example of how the same exact cost can be classified as direct or indirect would be the salary of a particular store's manager of a retail store chain. The salary is direct in relation to a particular store but indirect in relation to a particular department within the store.
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