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

Gupta Textiles incurred the following in a month: wages paid to machine operators Rs 1,80,000, of which Rs 20,000 relates to idle time caused by power failure; wages of the factory cleaner Rs 15,000; and wages of the sales staff Rs 40,000. Treating idle time as part of factory overheads, what is the direct labour cost for the month?

Direct labour cost is Rs 1,60,000. Operator wages of Rs 1,80,000 are reduced by Rs 20,000 of idle time, which is treated as factory overhead. The cleaner's wages and sales staff wages are indirect or selling costs and are excluded from direct labour.

  1. ARs 1,60,000Correct
  2. BRs 1,80,000
  3. CRs 1,95,000
  4. DRs 1,40,000

Explanation

Direct labour is the wages of operators engaged in production, excluding idle time, which is overhead: 1,80,000 - 20,000 = 1,60,000. The cleaner's wages are indirect and sales staff wages are selling overhead. Rs 1,80,000 is wrong as it ignores the idle time adjustment.

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