Answer (A) is correct . A cost that bears an observable and known relationship to a quantifiable activity base is known as an engineered cost. Engineered costs have a clear relationship to output. Direct materials would be an example of an engineered cost.
Answer (B) is incorrect because An indirect cost does not have a clear relationship to output.
Answer (C) is incorrect because A sunk cost is the result of a past irrevocable action; it is not important to future decisions.
Answer (D) is incorrect because A target cost is the maximum allowable cost of a product and is calculated before the product is designed or produced.
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