Question

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. Direct labor cost Direct materials cost Manufacturing overhead cost Selling cost Administrative cost 2. The cost of advertising in the Puget Sound Computer User newspaper Direct labor cost Direct materials cost Manufacturing overhead cost Selling cost Administrative cost 3.The wages of employees who assemble computers from components. Direct labor cost Direct materials cost Manufacturing overhead cost Selling cost Administrative cost 4.Sales commissions paid to the company's salespeople Direct labor cost Direct materials cost Manufacturing overhead cost Selling cost Administrative cost

Answer 1

1. The answer is Option B Direct Materials Cost because one of the most important part of computer are hard drives and without the hard drives computer cannot be sold as a finished product and whatever part requires directly for the completion of the product forms part of the Direct Material. Therefore hard drives are Direct Material Cost.

2. The answer is option D Selling Cost because the whole expenses is related to Advt. of the products and the expenses is done for making our product more known in the market therefore this cost forms part of Selling Cost.

3. The answer is option A Direct Labour Cost. Labour cost is that cost which is incurred for the manufacturing the final product and it shown that the cost was incurred for assembling the product. Therefore it forms part of Direct Labour Cost.

4.The answer is option D Selling Cost, by the company an incentive is given for selling the products to the sells men so they could sell more product. Therefore it forms part of Selling Cost.

5.The answer is option C Manufacturing Overhead Cost. All the cost incurred in the factory that are not directly related to manufacturing of the product are transfered to manufacturing Overhead cost and as the supervisor is not directly involved in manufacturing of the product so it forms part of Manufacturing Overhead Cost.

6.The answer is option E Administrative Cost. All the office expenses that are not directly related to the manufactuinrg of the product are transfered to Administrative cost and as the salary of the accountant are not directly related to manufacturing it forms part of Administrative Cost.

7.The Answer is option C Manufacturing Overhead Cost. As deprecation is a manufacturing expenses and it cannot directly allocated to the direct labour cost or direct material cost therefore it transfered to Manufacturing Overhead Cost.