Commercial Applications
Identify which of the following is NOT a direct cost in a cotton textile unit.
- Rent of the factory where production is being carried out.
- Expense incurred on advertisement to promote the sale of the finished product.
- Colours used for dyeing the cotton fabric.
- Wages paid to the operators of sewing and spinning machines.
Cost
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Answer
Expense incurred on advertisement to promote the sale of the finished product.
Reason — Advertisement expense is a selling and distribution overhead — it is incurred to promote sales after the product is made and cannot be traced directly to any specific unit of cotton textile produced. Hence it is an indirect cost, not a direct cost. Colours used for dyeing (direct material), wages of machine operators (direct labour), and rent of the room/factory specifically used for producing the textile (treated as direct expense per textbook) are all directly chargeable to the product.
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