CMA Intermediate · Cost Accounting · Direct Expenses
Mehta Industries incurred Rs 80,000 on a special tool made solely for a customer order of 2,000 units. The tool will be of no further use after the order. Under the treatment of direct expenses, the cost per unit of the order attributable to the tool is:
The tool cost is Rs 40 per unit, charged as a direct expense of the order. Because the tool is made only for this customer order and has no later use, the full Rs 80,000 is traceable to the order and is divided by 2,000 units.
- ARs 40, charged as a direct expense of the orderCorrect
- BRs 40, absorbed as factory overhead on all products
- CRs 20, treated as a direct expense after halving for salvage
- DRs 80, charged as a direct expense on one unit
Explanation
The tool is made only for this order and has no further use, so the whole cost is directly chargeable to the order. Per unit = 80,000 / 2,000 = Rs 40. Treating it as general overhead would spread it to unrelated products, which is incorrect.
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