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CMA Intermediate · Financial Accounting · Insurance Claim for Loss of Stock and Loss of Profit

Which of the following is generally treated as an insured standing charge, which continues during the interruption of business and is recoverable under a loss of profit policy?

Salaries of permanent staff and rent that continue during the stoppage are insured standing charges. They are fixed and do not fall with turnover, so the policy covers them. Piece-rate wages, materials and sales commission vary with turnover and are not recoverable as standing charges.

  1. AWages paid on piece-rate basis
  2. BRaw material consumed
  3. CSalaries of permanent staff and rent not reduced during the stoppageCorrect
  4. DCommission payable on sales

Explanation

Standing charges are fixed expenses that continue regardless of turnover, such as rent and permanent staff salaries. Piece-rate wages, material consumed and sales commission are variable and reduce when turnover falls, so they are not insured standing charges.

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