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CMA Foundation · Fundamentals of Financial and Cost Accounting · Classification of Costs (CAS 1)

A company spends Rs 12,000 on advertising a new product, Rs 8,000 on research into improving an existing product's design, and Rs 5,000 on freight to deliver goods to customers. Treating research as a separate functional category, how much is selling and distribution cost?

Selling and distribution cost is Rs 17,000, being advertising Rs 12,000 plus outward freight Rs 5,000. The Rs 8,000 spent on design research is a research and development cost, treated here as its own functional category, so it is excluded from selling and distribution.

  1. ARs 17,000Correct
  2. BRs 25,000
  3. CRs 13,000
  4. DRs 20,000

Explanation

Advertising (Rs 12,000) is a selling cost and freight outward (Rs 5,000) is a distribution cost, so selling and distribution = 12,000 + 5,000 = Rs 17,000. Research and development is a separate functional category and is excluded. Rs 25,000 wrongly includes all three items, and Rs 13,000 wrongly pairs research with freight.

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