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

In a manufacturing firm, the salary of the factory production manager and the salary of the sales manager are classified, by function, respectively as:

The factory production manager's salary is a production cost because it supports manufacturing, while the sales manager's salary is a selling and distribution cost because it supports marketing and sales. Functional classification assigns each cost to the activity it serves, not to the nature of the expense.

  1. AProduction cost and selling and distribution costCorrect
  2. BAdministration cost and selling cost
  3. CProduction cost and administration cost
  4. DSelling and distribution cost and production cost

Explanation

Functional classification groups costs by the activity they serve. The factory manager's salary relates to manufacturing, so it is production cost. The sales manager's salary relates to selling the product, so it is selling and distribution cost. Treating the factory manager's salary as administration confuses plant supervision with general management.

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