Question 12.2: Sparky Ltd is a business that employs a number of electricia...
Sparky Ltd is a business that employs a number of electricians. It does a range of work for its customers, from minor repairs to installing complete wiring systems in new houses.
Into which category—direct or indirect—would each of the following costs fall for a particular job done by Sparky Ltd:
• the wages of the electrician who does the job
• deprecation (wear and tear) of the electrician’s tools
• the salary of Sparky Ltd’s accountant
• the cost of cable and other materials used on the job
• rent of the premises where Sparky Ltd stores its cable and other materials?
One the electrician’s wages earned while working on the particular job and the cost of the actual materials used on the job are direct costs. This is because it is possible to measure how much time (and, therefore, labour cost) was spent on the particular job, and it is possible to measure how many materials were used in the job.
All of the other costs are general costs of running the business and, as such, must form part of the full cost of doing the job, but they cannot be directly measured in respect of the particular job.