Skip to content

CA Intermediate · Cost and Management Accounting · Employee Cost and Direct Expenses

A factory worker at Kalyani Engineering is paid a basic wage of Rs 600 per day plus dearness allowance. The company's cost accountant is classifying the cost of idle time caused by a normal power interruption of 2 hours per day, which is unavoidable in the region. How should the cost of this normal idle time be treated?

Normal idle time is unavoidable, so its cost is treated as part of production cost and included in factory overheads. Only abnormal idle time, arising from avoidable causes such as a breakdown or strike, is written off to the Costing Profit and Loss Account.

  1. ACharged to Costing Profit and Loss Account as an abnormal loss
  2. BIncluded in the cost of production by way of factory overheadsCorrect
  3. CCharged to the worker as a penalty
  4. DTreated as direct wages of the specific job being worked at

Explanation

Normal idle time arises from unavoidable causes and is a part of the cost of production. It is therefore absorbed through overheads (or by inflating the wage rate). Abnormal idle time alone is transferred to the Costing Profit and Loss Account, so option A is wrong.

Did you get it right without looking?

One question tells you little. A timed set on Employee Cost and Direct Expenses shows your real accuracy, how long you take and where you lose marks.

Practise Employee Cost and Direct ExpensesFree diagnostic mock

More Employee Cost and Direct Expenses questions