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Week 3 Threaded Discussion Classifying Costs Assume you are going to become an entrepreneur and start your own business. Think about your talents and interests and come up with an idea for a small business venture that provides a unique product or service to local customers. You can select any business venture or select one from the following list: catering, wedding-planning consulting, video production company, personal shopping service, flower shop, or rock climbing guide service. In preparing your response, answer the following questions: 1. What would be the major costs of our business? Classify the costs into the areas of direct materials, direct labor, manufacturing overhead, general and administrative costs, and selling costs. (Your business may not have all of these cost classifications.) 2. In general, would you expect your company's indirect (overhead) costs to be less or more than the direct costs? What allocation base do you think you would use to charge overhead costs to individual customers? Search entries or author Unread mm Subscribe Reply

Answer 1

1) We have decided to start a Catering business to the various airlines, corporate and entertainment companies. Our business‘s major costs are:

a) The direct fooding materials like flour, vegetables, spices and food materials, Cooking oils and cooking fuels.

b) The direct labor like wages to cooking labor, helpers and packing staff.

c) The manufacturing overhead like rent, utilities, supplies, depreciation of equipments, cartage, loading and .

d) General and Administration costs like rent of office, depreciation of furniture and fixtures, office utilities, Salaries to office staff and accountants.

e) Selling costs like salaries to delivery staff & drivers, hiring charges, loading and unloading expenses.

2) The indirect cost are going to be more than the direct costs as overheads and availability of the food to the customers would take much of the costs. As the costs are more of labor based, so it would be easier to allocate the overhead costs to the customers on the bases of “direct labor hours” devoted to a respective customer.

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