ACCA Applied Knowledge · Management Accounting · Cost classification
A company pays $9,000 to hire a special machine for one customer's job only. Which is the correct classification of this cost?
It is a direct expense because the machine hire is incurred solely for one customer's job and can be traced directly to that job. Expenses benefiting production generally would instead be indirect expenses within overheads.
- ADirect expenseCorrect
- BIndirect expense
- CDirect labour
- DSelling and distribution overhead
Explanation
Hire of equipment for a single specific job can be traced directly to that job, so it is a direct expense. It would be indirect only if the machine served several jobs generally.
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