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.
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.
Related Questions
Costs incurred other than on material and labour for production and distribution are called ……………
- Labour cost
- Material cost
- Expense
- Variable cost
A firm has to pay a fixed rent of ₹500 for the post-paid mobile bill and further pay extra charges for the calls made in a month. Identify the type of cost mentioned here.
- Fixed cost
- Variable cost
- Semi-Fixed cost
- Unit cost
An example of manufacturing overhead is ……………
- Fuel
- Office Rent
- Advertising
- Stationery
"Abnormal costs are not recorded as part of production cost." Justify for or against.