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

In a manufacturing company, the salary of the factory production supervisor, depreciation of the sales showroom and the salary of the finance manager are listed. Which classification by function correctly places these three items in order?

The factory supervisor's salary is a production cost, the showroom depreciation is a selling and distribution cost, and the finance manager's salary is an administration cost. Functional classification groups costs by the activity they serve: making goods, selling them, or general management of the business.

  1. AProduction cost, selling and distribution cost, administration costCorrect
  2. BProduction cost, administration cost, selling and distribution cost
  3. CAdministration cost, selling and distribution cost, production cost
  4. DSelling and distribution cost, production cost, administration cost

Explanation

Factory supervisor salary is incurred in running the factory, so it is a production cost. Depreciation of the sales showroom supports selling, so it is a selling cost. The finance manager's salary relates to general management of the organisation, so it is an administration cost. Option B swaps the last two items.

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