ACCA Applied Knowledge · Management Accounting · Cost classification
A company manufactures chairs. Which of the following is a direct cost of producing a chair?
The cost of timber used in the chair is a direct cost because it can be traced economically to each unit produced. Supervisor wages, building depreciation and warehouse rent are shared overheads that cannot be attributed to individual chairs.
- AWages of the factory supervisor
- BDepreciation of the factory building
- CCost of timber used in the chairCorrect
- DRent of the warehouse
Explanation
A direct cost can be traced economically to a specific cost unit. Timber becomes part of each chair, so it is direct. The supervisor's wages, factory depreciation and warehouse rent are indirect overheads shared across all products.
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