Question

2)

Below are listed some of the costs incurred by our company. For each cost, indicate whether it would

most likely be classified as Direct Labor, Direct Materials, Overhead, Selling and Administrative Expense. (2

points). We own a business which manufactures and sells pencil sharpeners.

a)

Cost of sand spread on the factory floor to absorb oil from the manufacturing machines.

b)

Cost of the warehouse used to store the pencil sharpeners after they are finished & before they

are sold.

c)

Cost of heating the corporate and sales building for the business.

d)

Pencil Sharpener Worker Wages.

e)

Insurance on the production equipment.

f)

Cost of the plastic used to make the pencil sharpeners.

g)

Cost of the utilities to heat the factory.

h)

The cost of the company sign advertising the pencil sharpeners on Interstate 95.

Answer 1

Direct materials, direct labor and overhead are the part of product costs as these are costs incurred during the production of goods

Period costs include general administrative and selling expenses. They are incurred to carryout operating activities and selling of finished goods.

a.	Cost of sand spread on the factory floor to absorb oil from the manufacturing machines.	Overhead
b.	Cost of the warehouse used to store the pencil sharpeners after they are finished & before they are sold.	Selling and Administrative Expense
c.	Cost of heating the corporate and sales building for the business.	Selling and Administrative Expense
d.	Pencil Sharpener Worker Wages.	Direct labor
e.	Insurance on the production equipment.	Overhead
f.	Cost of the plastic used to make the pencil sharpeners.	Direct materials
g.	Cost of the utilities to heat the factory.	overhead
h.	The cost of the company sign advertising the pencil sharpeners on Interstate 95	Selling and Administrative Expense