Question

Exercise 14-05 Your answer is partially correct. Try again. Gala Company is a manufacturer of laptop computers. Various costs and expenses associated with its operations are as follows. The company intends to classify these costs and expenses into the following categories: (a) direct materials, (b) direct labor, (c) manufacturing overhead, and (d) period costs.

Answer 1

Before we categorise the given cost, we need to to get clarity about the terms :-

A. Direct material cost

B. Direct labour cost

C. Manufacturing overhead

D. Period cost.

A. Direct material cost :-

direct material cost is the cost of raw material and components used to create a product. The materials must be easily identifiable with the resulting product (otherwise they are considered to be joint cost). the direct material cost is one of the few variable cost involved in the production process.

B. Direct labour cost :-

direct labour cost are the wages or salaries paid to employees who are physically produced products. in other words, these expenses are the cost paid to workers who make the product that manufactures sell.

C. Manufacturing overhead :-

Manufacturing overhead is all indirect cost incurred during the production process. This overhead is applied to the units produced within a reporting period.

D. Period cost :-

​​​​​​Prepaid cost is any cost that cannot be capitalised into prepaid expenses, inventory or fixed assets. a period cost is more closely associated with the passage of time then with a transactional event. since a period cost is essentially always charged to expense at once, it may more appropriately be called a period expense. A period cost is charged to the expense in the period incurred. This type of cost is not included within cost of goods sold on the income statement. instead it is typically included within the selling and administrative expenses section of the income statement.

Categorisation of given expenditure.

Item	Category	Reason
Property taxes on factory building	manufacturing overhead	this cost is not directly traceable in the cost of production of units. But this cost incurred at the level of production. Hence it is classified as manufacturing overhead.
Production superindent salaries	direct labour cost	this expenditure is incurred for production of units and can be directly traceable in the cost of production of products.
Memory boards and chips used in assembling computers	direct material cost	these are the physical components which are used in production of units. The cost of these memory boats is directly traceable in the cost of production.
Depreciation on factory equipment	manufacturing overhead	this expenditure incurred in production level but cannot be traceable directly in the cost of product
Salaries for assembly line quality control inspector	period cost	these are the indirect cost incurred after production but before supply of products. Hence it cannot be traceable in cost of production.
Sales commission paid to sell laptops	period cost	these are the cost incurred towards the product after production for selling product. So this is a indirect cost
Electrical components used in assembling computers	direct material cost	these are the material used in production of units. It can be directly traceable in cost of production of units.
Wages of workers assembling laptop computers	direct labour cost	these costs are incurred directly for production of units. These are directly traceable in the cost of product.
Soldering materials used on factory assembly lines	direct material cost	these are the material used for the production of unit and this can be directly traceable in the cost of product
Salaries for the night security guard for factory building	period cost	these are the indirect cost incurred for the administration of the organisation. This cannot be traceable in the cost of production of the unit. It is a indirect cost.

these are all the information and explanation is required to solve the above given question.

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