CMA Intermediate · Cost Accounting · Direct Expenses
Sharma Engineering hires a special machine for Job J-42 only, paying Rs. 18,000 per month for 3 months, and it is used for no other job. Hire charges, as a cost of Job J-42, are best classified as:
The hire charges are a direct expense of Job J-42 amounting to Rs. 54,000, being Rs. 18,000 for three months. The machine is used only for that job, so the cost is traceable to it and need not be apportioned as overhead.
- ADirect expense, Rs. 54,000Correct
- BFactory overhead, apportioned across all jobs
- CAdministrative overhead
- DDirect expense, Rs. 18,000
Explanation
Hire charges of a machine used exclusively for one job are directly traceable to it. Total = 18,000 x 3 = Rs. 54,000. Treating it as overhead ignores traceability; Rs. 18,000 covers only one month.
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