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Tutor, I attempted a question in Kaplan kit which said that plant hiring is a direct cost to business.
I am unable to figure why direct cost.
We say that direct costs are cost which are directly attributed to product or the cost which we can calculate by seeing the product.
When the customer will have any unit of that manufacturing company so how he can see that the plant is hired or is it business owned plant.
I am unable to define my question exactly.Question 2: I am confused as two questions are contradicting in kit. Please help me how to deal in this situation
(Q1) A company manufactures and sells toys and incurs the following three costs:
(I) Rental of the finished goods warehouse
(II) Depreciation of its own fleet of delivery vehicles
(iii) Commission paid to sales staff.
Which of these are classified as distribution costs?
A (i) and (ii) only
B (ii) and (iii) only
C (ii) only
D (i) and (iii)
Here answer is A.(Q2) George plc makes stationery. How would he classify the following costs?
(A) Administration
(B) Distribution
(C) Production(I) Purchases of plastic to make pens
(II) Managing director’s bonus
(III) Depreciation of factory machinery
(IV) Salaries of factory workers
(V) Insurance of sales team carsHere (V) is Distribution expense.
I am unable to understand in one question it is saying sales team expense as distribution expense while in other it is not. What to do in this?
1. It would normally be an indirect cost unless it was for a specific job in which case it would be a direct cost for that job.
2. The insurance of the sales team cars is not really a distribution expense unless they were delivering the stationery. It is a selling cost which can however be treated as a distribution cost (given that ‘selling expenses’ are not given as an option in the second question. To be honest, the same applies to the commission paid to sales staff and I agree with you that the answers do conflict.
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