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CA Intermediate · Cost and Management Accounting · Employee Cost and Direct Expenses

Which of the following is treated as an indirect employee cost in a manufacturing company and therefore included in factory overheads?

The salary of the factory works manager is an indirect employee cost, because it benefits the whole factory and cannot be traced to a particular job or unit. It is therefore collected under factory overheads, whereas operator wages, piece-rate wages and order commission are direct.

  1. AWages of a machine operator working on a specific job
  2. BSalary of the factory works managerCorrect
  3. CPiece-rate wages paid to a worker for units of a product made
  4. DCommission paid to a worker on a specific order

Explanation

Indirect employee cost cannot be traced to a specific cost unit. The works manager's salary supports the whole factory, so it goes to factory overheads. The other three payments are linked to specific jobs or units and are direct employee costs.

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