Skip to content

CA Intermediate · Cost and Management Accounting · Introduction to Cost and Management Accounting

Bharat Textiles Ltd. pays its supervisor a salary of Rs 30,000 per month. The supervisor spends 60% of his time on Product A and 40% on Product B, which are manufactured in the same factory. For cost classification, this salary is best treated as:

The supervisor's salary is an indirect cost, or factory overhead, because it is common to both products and cannot be economically traced to a particular unit. It must be apportioned on a reasonable basis such as time spent, and it is not part of prime cost.

  1. AA direct cost of Product A only
  2. BA direct cost of both products, since it is traceable
  3. CAn indirect cost (overhead) to be apportioned to productsCorrect
  4. DA prime cost of the factory

Explanation

Supervision is not economically traceable to a unit of a specific product; it serves both products and is shared. Hence it is an indirect cost (factory overhead) to be apportioned, here possibly on time spent. Treating it as prime cost would be wrong because prime cost covers only direct materials, direct labour and direct expenses.

Did you get it right without looking?

One question tells you little. A timed set on Introduction to Cost and Management Accounting shows your real accuracy, how long you take and where you lose marks.

Practise Introduction to Cost and Management AccountingFree diagnostic mock

More Introduction to Cost and Management Accounting questions