Skip to content

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

Aarav Constructions engaged a specialist contractor for a special fabrication on Job 22. The cost of a drawing design prepared by an external consultant solely for Job 22 was Rs 45,000. How should this cost be classified in the cost sheet of Job 22?

The Rs 45,000 design fee is a direct expense and is charged directly to Job 22. It is incurred solely for that job, so it is traceable to the cost unit and is not apportioned as a factory, administration or selling overhead.

  1. ADirect expense, charged directly to Job 22Correct
  2. BFactory overhead, apportioned to all jobs
  3. CAdministration overhead
  4. DSelling and distribution overhead

Explanation

Direct expenses are expenses other than direct material and direct labour that are incurred specifically for a particular cost unit. A design made only for Job 22 is traceable to it, so it is charged directly. Apportioning it across all jobs would ignore the direct traceability.

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