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

Under the functional classification of costs, which of the following is treated as a research and development cost rather than a production cost?

The cost of experiments to develop an improved version of an existing product is a research and development cost. R&D covers discovering new products, processes or improvements, whereas inspection on the line, operator wages and routine materials relate to ongoing production and are classed as production costs.

  1. ACost of experiments to develop an improved version of an existing productCorrect
  2. BCost of inspecting finished units on the assembly line
  3. CWages of machine operators in the factory
  4. DCost of raw materials consumed in routine production

Explanation

Research and development costs are those incurred in discovering new products or improving existing products and processes. Experiment costs for an improved product version fit this. Routine inspection, operator wages and raw materials relate to regular production, so they are production costs.

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