Explanation
Direct costs are directly associated with the production of a good or service. In this question, 'An employee is hired to work on a project, either exclusively or for an assigned number of hours' and 'Raw materials' are directly related to producing the product.
Indirect costs are the general costs of the organisation - these costs cannot easily be attributed to specific products or services (also known as overheads). 'The materials and supplies needed for the company’s day-to-day operations' or 'Clerical assistants who maintain the office' or 'Advertising and marketing communication' is example of indirect cost.
[Reference: CIPS study guide page 25-26, LO 1, AC 1.2, QUESTIO NO: 8, Which of the following are most likely to increase the buyer’s bargaining power?, 1. Buyers are price sensitive, 2. High set-up cost for new entrants, 3. Threat of forward integration is high, 4. Threat of backward integration is significant, A. 3 and 4 only, B. 2 and 3 only, C. 1 and 4 only, D. 2 and 4 only, Answer: C, , Explanation, Price sensitivity is the degree to which the price of a product affects consumers' purchasing behaviours. Buyer power will be stronger if buying organisation are price sensitive and vice versa., Backward integration is a form of vertical integration in which a buying organisation expands its role to fulfil tasks formerly completed by businesses up the supply chain. Buyer power is strong if threat of backward integration is high., Set-up cost is a determinant of threat of new entry. Some industries require very expensive assets in order to make products. The financial risk of entering the industry and not succeeding can deter many potential new entrants. The fewer new entrants, the fewer available substitutes, then the bar-gaining power of buyer can be negatively affected., Forward integration is a business strategy that involves a form of vertical integration whereby business activities are expanded to include control of the direct distribution or supply of a compa-ny's products. Threat of forward integration is a determinant of supplier's bargaining power., Reference: CIPS study guide page 88-91, LO 2, AC 2.2, , ]
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