CMA Intermediate · Cost Accounting · Direct Expenses
Which of the following is a direct expense rather than an indirect expense for a manufacturing company producing several products?
The cost of a drawing designed specifically for one customer's order is a direct expense, since it is incurred only for that order and can be traced to it. Factory rent, plant insurance and the works accountant's salary are shared costs, hence overheads.
- ACost of a drawing designed specifically for one customer's orderCorrect
- BRent of the factory premises
- CFire insurance premium on plant
- DSalary of the works accountant
Explanation
Design charges for a particular customer's order are incurred solely for that order and are traceable, so they are direct expenses. Rent, insurance and the works accountant's salary are common to all products and are overheads.
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