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

Answer 1

1.direct material cost.

Because, the hard drive is a computer component that is purchased from manufacturer and used in the process of assembling to make computer. As it forms part of main unit, it is direct material.

2. Selling cost.

Because, advertising in a newspaper is a way of informing customers about the product available for sale.This advertisement is needed to sell the product. So it is part of selling cost.

3. Direct labor cost.

Because, it is paid for those who work in the prime activity (i.e. assembling). Amount paid to employees who work in the manufacturing process forms part of direct labor cost, where as the employees who work in other than manufacturing process forms part of administrative cost.

4. Selling cost.

Because, the sales commission is meant for boosting sales, so it is selling cost. Any expense incurred for the purpose of selling products is selling cost.

5. Manufacturing overhead cost.

Because, manufacturing overhead cost is the indirect expense incurred in the manufacturing process. The salary of supervisor is indirect expenses as it is not variable cost. As he worked within the factory, it is manufacturing cost.

6. Administrative cost.

Because, the accountant is not working for manufacturing process. Accountant does accounting job which is an administrative work. So it is administative cost.

7. Selling cost.

Because, the equipment is used to test the products that are already assembled, that means this equipment is used after manufacturing process is completed. So this is not manufacturing cost. As administrative cost is not specifically related to production and sales this equipment depreciation can't be administrative cost. This equipment is used to sell the product i.e. before handling product to customer it is tested and then it is given to customer. Therefore this is selling cost.