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

Mehta Engineering has the following costs for a job: raw materials Rs 90,000, wages of workers on the job Rs 60,000, royalty paid on the job's output Rs 5,000, and fuel for the factory generator Rs 8,000. Under CAS 1 style classification, the total direct cost, including direct expenses, is:

Total direct cost is Rs 1,55,000, made up of materials Rs 90,000, labour Rs 60,000 and royalty Rs 5,000 that is directly attributable to the job's output. Generator fuel serves the whole factory, so it is an indirect cost and is excluded.

  1. ARs 1,63,000
  2. BRs 1,50,000
  3. CRs 1,55,000Correct
  4. DRs 1,58,000

Explanation

Direct cost = direct materials 90,000 + direct labour 60,000 + direct expense (royalty on production, chargeable to the job) 5,000 = 1,55,000. Fuel for the generator is a general factory overhead and is indirect. Rs 1,63,000 wrongly includes the fuel.

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