Question

Salary and wages paid to labourers engaged at site are direct cost hence debited to:

• A. Process Account
• B. Contract Account
• C. Batch Account
• D. Wages Account

Hint:

Even though labor wages are normally classified as indirect costs in a standard manufacturing plant, they are treated as direct costs in contract costing because the labor is physically tied to a single construction site.

Answer 1

The Correct Option is B

Step 1: Analyzing Labor Costs in Contract Costing:
In contract costing, a separate account is set up for each contract in the ledger. Labor wages paid to workers, supervisors, and engineers who are physically stationed at a specific project site are treated as direct costs of that contract.

Step 2: Evaluating the Accounting Entry:
Because these wages are traceable directly to a specific contract, they must be charged directly to that contract's ledger account. The entry is: $$\text{Contract Account (Specific Contract No.) Dr.}$$ $$\quad \text{To Cash / Wages Control Account}$$

Step 3: Reviewing the Options:

• Process Account (A): Used in continuous process manufacturing, not on-site construction.
• Contract Account (B): The ledger account where all site-specific direct expenses are accumulated. This matches the entry above.
• Batch Account (C): Used for batch runs, not site-based contracts.
• Wages Account (D): This is a clearing account where general salaries are recorded before being allocated. It is not the final resting place for direct costs. Therefore, option (B) is the correct answer.