CMA Intermediate · Cost Accounting · Direct Expenses
Verma Industries produced 8,000 units. Royalty is Rs. 6 per unit sold; 7,200 units were sold. Subcontracted job-specific processing cost was Rs. 40,000 for the whole batch, and special pattern hire for the batch was Rs. 24,000. Direct materials Rs. 2,00,000, direct wages Rs. 1,20,000. Royalty is charged on units sold only and is treated as a selling-linked direct expense, not part of production cost. Total direct expenses included in the prime cost of the 8,000 units is:
Direct expenses in the prime cost are Rs. 64,000, being subcontracted processing of Rs. 40,000 plus pattern hire of Rs. 24,000. Royalty is levied on units sold, so it is excluded from the production prime cost in this question.
- ARs. 64,000Correct
- BRs. 1,12,200
- CRs. 1,07,200
- DRs. 40,000
Explanation
Royalty on sales is excluded from production prime cost here. Direct expenses for production = 40,000 + 24,000 = Rs. 64,000. Including royalty on 7,200 units (43,200) gives 1,07,200; on 8,000 units (48,000) gives 1,12,000; only subcontract gives 40,000.
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