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

Which one of the following is treated as a direct expense of a job rather than as overhead?

Royalty paid per unit produced is a direct expense because it varies with output and is traceable to the product. Factory manager salary, building depreciation and general lubricating oil serve the whole factory and cannot be traced to a specific job, so they are overheads.

  1. ASalary of the factory manager
  2. BRoyalty paid per unit produced under a licence for the productCorrect
  3. CDepreciation of the factory building
  4. DCost of lubricating oil used for all machines

Explanation

Direct expenses are costs other than material and labour that can be traced to a specific product or job. Royalty payable per unit produced is such a cost. The manager's salary, building depreciation and common lubricants are indirect and form factory overheads.

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