Sales Incentives - Why it is indirect expense (Video No:10. Elements of Cost)

Costing

Sir, In your above mentioned video, sir says that SALES INCENATIVE as indirect expense . But at the same time we can corelate this expense with the number of chairs we sold. If we sale less number of chares , we have to pay less amount of incentives. As it is directly related with the product ,then why can not we consider it as DIRECT EXPENSE. Please guide me sir.

Thankachan Jimmy

CMA Inter

★ 0

25-Feb-23 09:25

1K+

Answers (3)

One reason I can think of is due to a minimum limit being fixed to get the incentives. For example for every chair sold after 100 by the sales person he gets the incentive. In this case the cost of incentive starts from inly the 101th chair, hence it is a mixed cost (variable + fixed) so it maybe taken a indirect cost. Correct me if I am wrong.

Aswin Kumar

CMA Inter

★ 30

25-Feb-23 12:26

Direct expenses - These are related to manufacturing. Will you pay the incentive when the Chair is manufactured? Whereas in the case of sales incentives - it is based on sales.

CA Suraj Lakhotia

Admin

25-Feb-23 12:42

CA Suraj Lakhotia Admin

Direct expenses - These are related to manufacturing. Will you pay the incentive when the Chair is manufactured? Whereas in the case of sales incentives - it is based on sales.

Thank you sir..

Thread Starter

Thankachan Jimmy

CMA Inter

★ 0

26-Feb-23 04:06