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

A plant manager of Kaveri Engineering reports the following for a month: direct materials ₹4,00,000, direct labour ₹2,50,000, variable overheads ₹1,10,000, depreciation of plant allocated by head office ₹90,000, and apportioned corporate overhead ₹1,20,000. Assuming the manager controls only costs he can influence, what is the total controllable cost?

The controllable cost is ₹7,60,000, being direct materials ₹4,00,000, direct labour ₹2,50,000 and variable overheads ₹1,10,000. Depreciation allocated by head office and apportioned corporate overhead are imposed from above, so the plant manager cannot influence them and they are excluded.

  1. A₹7,60,000Correct
  2. B₹6,70,000
  3. C₹5,60,000
  4. D₹8,70,000

Explanation

Controllable = 4,00,000 + 2,50,000 + 1,10,000 = ₹7,60,000. The head-office depreciation and corporate overhead are outside his control. Including depreciation gives ₹8,50,000 and including both gives ₹9,70,000; ₹6,70,000 wrongly omits the variable overheads.

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