Question

Split these costs into direct and indirect costs:

The company has 3 divisions: S/W Development, Marketing & Sales, and S/W Support.

- The average cost to company of the staff in the various divisions is as follows:

1. S/W Development: 12 engineers @ R552k per person average cost-to-company
2. Marketing & Sales: 6 staff @ R420k per person average cost-to-company
3. S/W Support: 10 technicians @ R360k per person average cost-to-company

- Cost of the equipment the S/W Development division uses.

- Rent

- CEO salary

- Administration staff with average annual cost-to-company of R108k.

- Other company fixed costs (utilities, etc.) total R21 000 per month.

Answer 1

Answer is as follows:

Direct costs are expenses that are attributable to a specific cost object which are directly involved in developing or creating a product.

Indirect costs are expenses that are not directly related in developing or creating a product.

1. S/W Development: 12 engineers @ R552k per person average cost-to-company - DIRECT COST

2. Marketing & Sales: 6 staff @ R420k per person average cost-to-company - INDIRECT COST

3. S/W Support: 10 technicians @ R360k per person average cost-to-company - DIRECT COST

4. Cost of the equipment the S/W Development division uses - DIRECT COST

5. Rent - INDIRECT COST

6. CEO salary - INDIRECT COST

7. Administration staff with average annual cost-to-company of R108k - INDIRECT COST

8. Other company fixed costs (utilities, etc.) total R21 000 per month - INDIRECT COST