Question

2) Classify the following costs for an auto manufacturer as either direct materials, direct labor, manufacturing overhead, or period costs. Required : Complete the answer sheet below by placing an "X" under each heading that identifies the cost involved. (12 pts) Direct Direct Manufacturing Period Cost Materials Labor Overhead a. Steel used in automobiles b. Assembly department employee wages c. Utility costs used in executive building d. Travel costs of sales personnel e. Cost of shipping goods to customers f. Property taxes on assembly plant g. Glass used in automobiles h. Factory maintenance supplies i. Depreciation on assembly plant j. Plant manager's salary ! Depreciation on executive building o. Advertising

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Answer 1

Ans:

Classification of costs for an auto manufacturer:

	Direct Material	Direct Labour	Manufacturing overhead	Period Cost
(a) Steel used in automobiles	X
(b) Assembly department employee wages		X
(c) Utility cost used in executive building			X
(d) Travel cost of sales personnel		X
(e) Cost of shipping goods to customers			X
(f) Property taxes on assembly plant				X
(g) Glass used in automobiles	X
(h) Factory maintenance supplies			X
(i) Depreciation on assembly plant				X
(j) Plant manager's salary			X
(l) Depreciation on executive building				X
(o) Advertising				X

Manufacturing overhead includes other costs in manufacturing that are neither direct materials costs nor direct labor costs. It might also be referred as the factory burden or production overhead. Its value is essential for determining the cost of products to be manufactured. But all indirect costs are the components of overhead.

Period cost refers to all those costs which are not related or tied with the production process of the company i.e., they are not assigned with any of the particular product of the company and are thus shown in the financial statement of the company for the accounting period in which they are incurred. Example of period costs are advertising, sales commissions, office supplies, office depreciation, legal and research and development costs.

Direct materials cost the cost of direct materials which can be easily identified with the unit of production. For example, the cost of glass is a direct materials cost in light bulb and automobile manufacturing. All costs of materials and components that are used to create a product are direct material costs.

Direct labor cost is a part of wage-bill or payroll that can be specifically and consistently assigned to or associated with the manufacture of a product, a particular work order, or provision of a service.