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A supervisor is responsible for monitoring the production process. One of his responsibilities includes that he has to inspect each unit before it is labeled ‘Good’ and sent to the finished goods store. The supervisor monitors and inspects FOUR different goods produced on the product line without specific time allocation to each product produced. His salary will be classified as
A. Direct cost
B. Indirect cost
C. Administrative cost
D. Selling costAm really confused because the definition of direct labor cost is all wages paid for labor (either as basic hours or as overtime) expended on the work of the product itself. But the question says that no time specifications are allocated to each product produced. Please help
Direct costs are costs that can be identified in each individual unit.
So (for example) if each unit takes 1 hour to produce and we pay workers $5 per hour, then we know the labour cost for each unit.
The cost of supervisors cannot be identified in each unit – the cost foes not depend on the number of units. Therefore they are an overhead (i.e. indirect cost) of production.
I do suggest that you watch the free lectures on this. The lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.
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