CMA Intermediate · Cost Accounting · Direct Expenses
Kaveri Constructions incurred the following for a contract: architect fees specific to the contract Rs 80,000 (of which Rs 20,000 is outstanding), cost of a design prepared by an outside consultant for the contract Rs 50,000 paid in advance for a period covering this contract fully, and head-office salaries Rs 90,000. Direct expenses for the contract, on accrual basis, are:
Rs 130,000. On an accrual basis the full architect fees of Rs 80,000, including the Rs 20,000 outstanding, plus the Rs 50,000 design cost are direct expenses of the contract. Head-office salaries are an overhead and are excluded.
- ARs 130,000Correct
- BRs 220,000
- CRs 110,000
- DRs 150,000
Explanation
Accrual basis includes outstanding amounts: architect fees are 80,000 in full (the 20,000 outstanding is included), not only the 60,000 paid. Design cost 50,000 relates fully to this contract. Head-office salaries are an indirect overhead. Total = 80,000 + 50,000 = 130,000. Using only cash paid gives 110,000.
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