Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 47

Cost classifications College Carriers manufactures backpacks that are sold to students for use as book bags.

Required:

Identify a specific item in this company’s manufacturing, selling, or administrative processes for which the cost would be classified as

a.raw material.

---

b. direct labor.

---

c. variable manufacturing overhead.

---

d. fixed manufacturing overhead.

---

e. fixed administrative expense.

---

f. fixed indirect selling expense.

---

g. variable direct selling expense.

Step 1 of 2

Cost classification:

It is the classification of a group of costs into different categories. It is done to direct management’s attention towards crucial costs. There categories of cost classification depend on the type of business.

Direct costs:

These are the costs which are directly related with the production. It includes direct material and direct labor costs.

Indirect costs:

These are the costs which cannot be directly assigned to a specific product or activity. It includes selling expenses, administration expenses, etc.

Variable costs:

These are the costs which vary with the production levels. They rise as production increases and decreases as production decreases. It includes commission, freight, etc.

Fixed costs:

These are the costs which remain fixed and do not vary with the level of activity. It includes rent, depreciation , etc.