Question

Write the letters "a" to "h" down the left hand column of your answer book. For each of the costs listed below, indicate whether it would most likely be classified as direct materials (DM), direct labour (DL), manufacturing overhead (OH), selling, or an administrative (Admin) cost. Write the word or abbreviation beside each letter in your answer book. a. b. c. d. The cost of a hard drive installed in a computer. The cost of advertising in the Canterbury Computer User newspaper. The wages of employees who assemble computers from components. Commissions paid to the company's sales people. The salary of the assembly department's supervisor. The salary of the company's accountant. Depreciation on equipment used to test assembled computers before release to customers. Rent on the building in Technology Park. e. f. h.

Answer 1

a.	DM
b.	admin
c	DL
d.	Admin
e	OH
f	admin
g	OH
h	admin

Direct material costs are of those materials which are used in manufacturing of the product.

Direct labor costs are those labor costs directly attributable to manufacture of goods.

Manufacturing overhead costs are those which are related to manufacturing process, example depreciation of manufacturing equipment, property taxes on factory building etc.

Selling and administrative expenses are period costs related to selling.