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CA Intermediate · Cost and Management Accounting · Employee Cost and Direct Expenses

Which of the following is a direct expense chargeable to a specific job, rather than an overhead, in the books of a cost accountant at Iyer Constructions?

Hire charges of special equipment taken for a particular job are a direct expense because they can be traced to that specific cost unit. Factory manager salary, office building depreciation and factory insurance serve the whole business and are overheads.

  1. ASalary of the factory manager
  2. BHire charges of special equipment taken for a particular jobCorrect
  3. CDepreciation of the general office building
  4. DInsurance premium on the whole factory

Explanation

Direct expenses are those incurred specifically for a particular job or cost unit other than direct material and direct labour. Hire of special equipment for one job is traceable to that job. The other items benefit the factory or business generally and are overheads.

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