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CMA Intermediate · Cost Accounting · Cost Accounting Standards (CAS 1 to CAS 24)

Which of the following is treated as a direct expense under the Cost Accounting Standard on Direct Expenses (CAS 10)?

Royalty paid on the number of units produced is a direct expense under CAS 10, because it can be traced directly to the product. Royalty on sales, a factory manager's salary and head office depreciation are all overheads.

  1. ARoyalty paid to a patent holder based on the number of units producedCorrect
  2. BRoyalty paid to a patent holder as a percentage of sales value
  3. CSalary of the factory manager
  4. DDepreciation of the head office building

Explanation

A direct expense is traceable to a specific cost object. Royalty linked to units produced is directly traceable to the product. Royalty based on sales value relates to selling and is not a production direct expense. The factory manager's salary and head office depreciation are overheads.

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