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CMA Intermediate · Cost Accounting · Direct Expenses

Under the cost accounting standard on direct expenses, which of the following is the correct treatment of an expense that is directly attributable to a cost object?

A direct expense should be traced to the cost object it is attributable to, measured on the basis of the cost incurred or payable. It should not be pooled into overheads or deferred until sale, as that would distort the cost of the product or job.

  1. ACharge it to a common overhead pool and apportion on a sales basis
  2. BTrace it to the cost object, measured on the basis of cost incurred or payableCorrect
  3. CIgnore it until the cost object is sold
  4. DCharge it to the financial profit and loss account only

Explanation

Direct expenses that can be identified with a cost object in an economically feasible manner are assigned directly. They are measured at the amount incurred or payable, on accrual basis. Pooling into overheads or ignoring them distorts product cost.

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