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

A job at Rao Fabricators requires a special die costing Rs 1,20,000 made for that job alone, and Rs 30,000 of designer fees paid to an outside consultant specifically for it. Factory rent allocated to the job is Rs 25,000. Which amount is the direct expense chargeable to the job?

The direct expense is Rs 1,50,000, being the special die of Rs 1,20,000 plus consultant fees of Rs 30,000, both incurred specifically for the job. Factory rent is an overhead, not a direct expense.

  1. ARs 1,50,000Correct
  2. BRs 1,20,000
  3. CRs 1,75,000
  4. DRs 30,000

Explanation

Direct expenses are those incurred specifically for a job and identifiable with it. The special die (Rs 1,20,000) and consultant fees (Rs 30,000) qualify, total Rs 1,50,000. Factory rent is an overhead apportioned, not a direct expense; including it gives Rs 1,75,000, which is wrong.

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