Question

Exercise 14-6 Cost classification LO C3 Tesla, a vehicle manufacturer, incurs the following costs. (1) Classify each cost as either a product or a period cost. If a product cost, identify it as direct materials, direct labor, or factory overhead, and then as a prime and/or conversion cost. (2) Classify each product cost as either a direct cost or an indirect cost using the product as the cost object. (Leave no cell blank if there is no effect select "NA - Not a product cost".) Cost by Traceability Period or Product Direct material, Direct labor, or Factory Overhead Prime or Conversion Direct or Indirect 1. Factory electricity 2. Advertising 3. Amortization of patents on factory machine 4. Batteries for electric cars 5. Office supplies used 6. Wages to assembly workers

Answer 1

Solution

	Cost by traceability	Period or Product	Direct Material, Direct labor or Factory Overhead	Prime or Conversion	Direct or Indirect
1	Factory electricity	Product	Factory overhead	Conversion cost	Indirect
2	Advertising	Period
3	Amortization of patent on factory machine	Product	Factory overhead	Conversion cost	Indirect
4	Batteries for electric cars	Product	Factory overhead	Conversion cost	Indirect
5	Office supplies used	Period
6	Wages of assembly workers	Product	Direct labor	Prime and Conversion cost	Direct

Direct labor is prime cost as well as conversion cost .

Conversion cost = Direct labor + Overhead

Prime cost = Direct material +Direct labor.