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

Which of the following is correctly classified as a direct expense rather than an overhead for a particular job?

The cost of a design made specially for one job is a direct expense because it is incurred for, and traceable to, that job. The works manager's salary, building insurance and general plant depreciation serve many jobs and are overheads.

  1. ASalary of the works manager
  2. BFire insurance premium on the factory building
  3. CCost of designing a drawing made specially for that jobCorrect
  4. DDepreciation of the general factory plant

Explanation

Expenses incurred specifically for one job and traceable to it, such as a special design charge, are direct expenses. Works manager salary, building insurance and general plant depreciation benefit many jobs and are overheads.

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