Question

Please help with classifying questions below

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The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that are incurred at the company. Required: For each cost, indicate whether it would most likely be classified as direct materials, direct labor, manufacturing overhead, selling. or an administrative cost. 1. The cost of a hard drive installed in a computer. 2. The cost of advertising in the Puget Sound Computer User newspaper 3. The wages of employees who assemble computers from components. 4. Sales commissions paid to the company's salespeople. 5. The salary of the assembly shop's supervisor. 6. The salary of the company's accountant. 7. Depreciation on equipment used to test assembled computers before release to customers. 8. Rent on the facility in the industrial park.

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Answer 1

Solution:

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Direct Material Cost: Direct material cost is the cost of the raw materials used to produce a product.

Direct Labor Cost: Direct labor cost is wages that are incurred in order to produce goods.

Manufacturing Overheads: The costs that are incurred in manufacturing that are neither direct material costs nor direct labor costs.

Selling costs: Selling costs are the expenses incurred to create demand for the product manufactured.

Administrative Cost: These costs are incurred for the purpose of administrating the business.

1. The cost of a hand drive installed in a computer – Direct Material Cost
2. The cost of advertising in the Puget Sound Computer User newspaper – Selling Cost
3. The wages of employees who assemble computers from components – Direct Labor Cost
4. Sales commissions paid to the company’s salespeople – Selling Cost
5. The wages for the assembly shop’s supervisor – Manufacturing Overhead
6. The salary of the company’s accountant – Administrative Cost
7. Depreciation on equipment used to test assembled computers before release to customers – Manufacturing Overheads
8. Rent on facility in the industrial park – Administrative Cost

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Product Cost: Product costs are the costs incurred in the process of manufacturing a product.

Period Cost: Period costs are the costs incurred with the passage of time and they are not connected to any product.

1. Depreciation on salespersons’ cars – Period Cost
2. Rent on equipment used in the factory – Product Cost
3. Lubricants used for machine maintenance – Product Cost
4. Salaries of personnel who work in the finished goods warehouse – Period Cost
5. Soap and paper towels used by factory workers at the end of a shift – Product Cost
6. Factory supervisors’ salaries – Product Cost
7. Heat, water, and power consumed in the factory – Product Cost
8. Materials used for boxing products for shipment overseas (Units are not normally boxed) – Period Cost
9. Advertising Costs – Period Cost
10. Workers’ compensation insurance for factory employees – Product Cost
11. Depreciation on chairs and tables in the factory lunchroom – Product Cost
12. The wages of the receptionist in the administrative offices – Period Cost
13. Cost of leasing the corporate jet used by the company's executives – Period Cost
14. The cost of renting rooms at a Florida resort for the annual sales conference – Period Cost
15. The cost of packaging the company’s product – Product Cost