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indirect cost

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › indirect cost

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by John Moffat.
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  • November 3, 2016 at 6:30 pm #347266
    ryan32
    Member
    • Topics: 35
    • Replies: 64
    • ☆☆

    electricity for running the machines is a variable cost as the more hours we operate the machine more will be the electricity usage and cost will also increase proportionately.But since it also include a fixed charge, that makes it a semi variable cost.

    my question is why electricity is an indirect cost?

    is it because exactly we can’t tell how much electricity get used up in producing 1 unit so thats why we can’t allocate that cost to one unit and thats why is an indirect cost and therefore the monthly electricity cost is absorbed by the units thru overhead absorption rate based on machine or labor hours

    am i right?.

    November 4, 2016 at 7:41 am #347327
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    Yes – you are right.

    Direct costs are those that can be directly measured for each unit, and are usually just the materials and labour costs.

    Have you watched the free lectures on this?

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