Ocean Eyes is a company registered and operating in the Maldives, who specializes in the dealership of marine personal use equipment which range from Sports fishing equipment, diving, snorkeling and other excursion equipment. The company imports certain parts and manufactures products in the Maldives. Regardless of having a noble background which stretches to years back in the history of watersports, the owner of the business is however quite new to the concepts of business and bookkeeping.

Due to the recent surge observed in the tourism industry followed by the COVID-19 impact, the business experienced quite the boom in revenues. As a result of this, the need for proper cost management emerged prominent to the owner of the business. He is keen on exploring the concepts of Management Accounting to better understand how the business is performing in aspects of the various products sold by the company.

As of now, he receives complains from certain customers that the products are priced way higher compared to some local brands and most of the international brands. He has been quite clueless about this concern as he has been focusing on covering the ALL the costs with a bare minimum profit.

You, as an accountant of the business are assigned the responsibilities of clarifying the doubts that the owner has in regard to the concepts.

You are required to:

1. Explain how the cost of Royalty of 30c should be classified in the accounts of the company (Direct or Indirect cost with explanations). The Royalty is paid to the Inventor of the Mermaid fins, a product that the company imports in parts and sells as a locally manufactured product.