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1. Are Sales Commissions considered Direct Labour Costs and therefore a part of the Prime Costs? I’ve seen them included as Direct Costs in some texts but I thought Commissions were similar to Bonus Payments which are definitely Indirect Costs.
2. Would the work on installing new equipment be considered a direct or indirect labour cost?
1. Sales commissions are not a production cost and therefore the distinction between direct and indirect is not relevant. They are a variable cost (they vary with the level of sales) and therefore are taken into account when calculating the contribution if we are taking a marginal costing approach.
2. The work on installing new equipment is treated as part of the cost of the new equipment and therefore it is not relevant to consider whether they are direct or indirect.
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