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

Which of the following items would be classified as an administration overhead rather than a factory or selling overhead?

Depreciation of the head office building used for general management is an administration overhead, because it relates to the general direction and control of the enterprise and not to manufacturing or selling. Factory machinery depreciation is production, while carriage outwards and dispatch packing supervision belong to selling and distribution.

  1. ADepreciation of the head office building used for general managementCorrect
  2. BDepreciation of factory machinery
  3. CCarriage outwards on finished goods
  4. DSalary of the packing supervisor on the dispatch floor

Explanation

Administration overheads relate to formulating policy, directing the organisation and controlling the enterprise. Depreciation of the head office building used for general management fits this. Factory machinery depreciation is a production overhead, and carriage outwards is a distribution cost. Dispatch floor packing supervision is a selling and distribution cost.

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