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CMA Intermediate · Cost Accounting · Direct Expenses

Royalty paid to a patent holder on the basis of units produced of a particular product, and the cost of a special drawing made for a specific job, are both examples of which cost element?

Both are direct expenses. Royalty based on units produced and a drawing prepared for one specific job can be traced to the product or job in an economically feasible way, so they are charged directly to the cost object rather than being pooled into overheads.

  1. AIndirect expenses charged to factory overhead
  2. BDirect expenses chargeable to the product or jobCorrect
  3. CAdministration overheads
  4. DSelling and distribution overheads

Explanation

Royalty linked to units produced and the cost of a design made for a specific job can be traced to the cost object economically. Hence they are direct expenses. They are not pooled into overheads because they are identifiable with the product or job.

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