ACCA Applied Knowledge · Management Accounting · Cost classification
Which of the following costs would be classified as a production (manufacturing) cost in a company that makes office chairs?
The factory supervisor's salary is a production cost because it is incurred in running the manufacturing process. Sales commission is selling, finished goods warehouse costs are distribution, and the finance director's pay is administration, so none of those are production costs.
- ASalary of the factory supervisor who oversees the assembly lineCorrect
- BCommission paid to sales representatives
- CDepreciation of the finished goods warehouse used only for despatch
- DSalary of the finance director
Explanation
Production cost includes costs incurred in converting materials into finished goods, such as factory supervision (indirect labour). Sales commission is a selling cost, warehouse depreciation for finished goods despatch is a distribution cost, and the finance director's salary is an administration cost.
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