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CMA Intermediate · Cost Accounting · Direct Expenses

Which of the following is correctly treated as a direct expense of a specific job in a manufacturing firm?

Royalty payable per unit produced under a licence is a direct expense because it can be traced to the specific product. The other items benefit the whole factory and cannot be economically traced to one job, so they are overheads.

  1. ARoyalty payable per unit produced under a licence for that productCorrect
  2. BSalary of the factory manager
  3. CDepreciation of the factory building
  4. DElectricity charges for the whole plant

Explanation

Royalty paid on units produced is traceable to the product and is a direct expense. The factory manager's salary, building depreciation and plant-wide electricity serve many jobs and are overheads.

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