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Classifying costs
The following is a list of costs that were incurred in the production and sale of lawn mowers:
a. Tires for lawn mowers.
b. Plastic for outside housing of lawn mowers.
c. Salary of factory supervisor.
d. Property taxes on the factory building and equipment.
e. License fees for use of patent for lawn mower blade, based on the number of lawn mowers produced.
f. Cost of advertising in a national magazine.
g. Salary of quality control supervisor who inspects each lawn mower before it is shipped.
h. Cash paid to outside firm for janitorial services for factory.
i. Attorney fees for drafting a new lease for headquarters offices.
j. Premiums on insurance policy for factory buildings.
k. Cost of boxes used in packaging lawn mowers.
l. Steel used in producing the lawn mowers.
m. Paint used to coat the lawn mowers, the cost of which is immaterial to the cost of the final product.
n. Commissions paid to sales representatives, based on the number of lawn mowers sold.
o. Payroll taxes on hourly assembly line employees.
p. Gasoline engines used for lawn mowers.
q. Hourly wages of operators of robotic machinery used in production.
r. Straight-line depreciation on the robotic machinery used to manufacture the lawn mowers.
s. Factory cafeteria cashier's wages.
t. Maintenance costs for new robotic factory equipment, based on hours of usage.
u. Telephone charges for company controller's office.
v. Electricity used to run the robotic machinery.
w. Steering wheels for lawn mowers.
x. Salary of vice president of marketing.
y. Engine oil used in mower engines prior to shipment.
z. Filter for spray gun used to paint the lawn mowers.
Instructions
Classify each cost as either a product cost or a period cost. Indicate whether each product cost is a direct materials cost, a direct labor cost, or a factory overhead cost. Indicate whether each period cost is a selling expense or an administrative expense. Use the following tabular headings for your answer, placing an "X" in the appropriate column.
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Product costs
Product costs consist of all manufacturing costs. Manufacturing costs includes direct material costs, direct labor costs and factory overheads. Hence, product costs are also called manufacturing costs.
Direct material
Direct material cost is the cost of raw materials. Cost of raw materials forms an integral part of the finished product.
Direct labor
Salaries and wage expenses amounts to direct labor cost.
Factory overheads
All indirect costs associated with manufacturing process of a product come under factory overheads. Factory overheads are otherwise called factory burden or manufacturing overheads.
Period costs
Selling and administrative costs come under period costs. Hence, period costs are also called non-manufacturing costs.
Selling expenses include sales commissions and sales expenses. Administrative expenses include factory rent, electricity, maintenance, salaries, and interest expenses.
Classify the costs as follows:
to the sales representatives, based on the number of lawn mowers sold
X
15
Payroll taxes on hourly assembly line employees
X
16
Gasoline engines used for lawn mowers
X
17
Hourly wages of operators of robotic machinery used in production
X
18
Straight line depreciation on the robotic machinery used to manufacture the lawn mowers
X
19
Factory cafeteria cashiers wages
X
20
Maintenance costs for new robotic factory equipment, based on hours of wages
X
21
Telephone charges for company's controller's office
X
22
Electricity used to run the robotic machinery
X
23
Steering wheels for lawn mowers
X
24
Salary of vice president of marketing
X
25
Engine oil used in mower engines prior to shipment
X
26
Filter for spray gun used to paint the lawn mowers
X
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Direct materials, direct labor, and factory overhead
Identify the following costs as direct materials (DM), direct labor (DL), or factory overhead (FO) for an automobile manufacturer.
a. Wages of employees that operate painting equipment
b. Wages of the plant supervisor
c. Steel
d. Oil used for assembly line machinery
Identify the following costs as direct materials (DM), direct labor (DL), or factory overhead (FO) for a magazine publisher.
a. Staples used to bind magazines
b. Wages of printing machine employees
c. Maintenance on printing machines
d. Paper used in the magazine
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Direct material
The cost of raw materials which form an integral part of the finished product and also a significant portion of the total product cost is called direct material costs.
Direct labor
The cost of salaries and wages which form an integral part of the finished product and also a significant portion of the total product cost is called direct labor costs.
Factory overheads
Factory overheads are all indirect costs associated in the manufacture of a product or service providence.
Factory overheads do not form an integral part of the finished product and also do not form a significant portion of the total product cost. Factory overheads are otherwise called factory burden or manufacturing overhead
2A) Costs related to automobile manufacturer
a)
Wages of employees that operate painting equipment are an example of factory overhead because their wages for cost of painting the automobile does not form an integral part of the automobile and does not form a significant portion of the total product cost.
b)
Wages of plant supervisor are an example of factory overhead because the salary for supervision of the automobile plant does not form an integral part of the automobile and does not form a significant portion of the total product cost.
Wages of plant supervisor is an indirect cost because they are not directly engaged in the production of an automobile.
c)
Steel is an example of direct material because automobiles are made up of steel and aluminum hence it forms an integral part of the automobile and also forms a significant portion of the total product cost.
d)
Oil used for assembly line machinery is an of factory overhead because the cost of the oil used in assembling line machinery of the automobile does not form an integral part of the automobile and does not form a significant portion of the total product cost.
2B) Costs related to magazine publisher
a)
Staples used to bind magazines' is a factory overhead because the cost of the staples used in binding magazines' for magazine publisher does not form an integral part of the magazine and does not form a significant portion of the total product cost
b)
Wages of employees that operate printing equipment are an example of direct labor because their wages for cost of printing the magazine forms an integral part of the automobile and forms a significant portion of the total product cost.
c)
Maintenance of the printing machines is a factory overhead because the cost of maintenance of the printing machinery for the magazine publisher does not form an integral part of the magazine and does not form a significant portion of the total product cost.
d)
Paper is an example of direct material because magazines' are made up of paper hence it forms an integral part of the magazine and also forms a significant portion of the total product cost.
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Classifying costs
Geek Chic Company provides computer repair services for the community. Obie Won's computer was not working, and he called Geek Chic for a home repair visit. Geek Chic Company's technician arrived at 2:00 P.M. to begin work. By 4:00 P.M. the problem was diagnosed as a failed circuit board. Unfortunately, the technician did not have a new circuit board in the truck, since the technician's previous customer had the same problem, and a board was used on that visit. Replacement boards were available back at Geek Chic Company's shop. Therefore, the technician drove back to the shop to retrieve a replacement board. From 4:00 to 5:00 P.M. , Geek Chic Company's technician drove the round trip to retrieve the replacement board from the shop.
At 5:00 P.M. the technician was back on the job at Obie's home. The replacement procedure is somewhat complex, since a variety of tests must be performed once the board is installed. The job was completed at 6:00 P.M.
Obie's repair bill showed the following:
Obie was surprised at the size of the bill and asked for some greater detail supporting the calculations. Geek Chic Company responded with the following explanations:
The labor charge per hour is detailed as follows:
Further explanations in the differences in the hourly rates are as follows:
1. If you were in Obie's position, how would you respond to the bill Are there parts of the bill that appear incorrect to you If so, what argument would you employ to convince Geek Chic Company that the bill is too high
2. Use the headings below to construct a table. Fill in the table by first listing the costs identified in the activity in the left-hand column. For each cost, place a check mark in the appropriate column identifying the correct cost classification. Assume that each service call is a job.
Obie was surprised at the size of the bill and asked for some greater detail supporting the calculations. Geek Chic Company responded with the following explanations:
The labor charge per hour is detailed as follows:
Further explanations in the differences in the hourly rates are as follows:
1. If you were in Obie's position, how would you respond to the bill Are there parts of the bill that appear incorrect to you If so, what argument would you employ to convince Geek Chic Company that the bill is too high
2. Use the headings below to construct a table. Fill in the table by first listing the costs identified in the activity in the left-hand column. For each cost, place a check mark in the appropriate column identifying the correct cost classification. Assume that each service call is a job.
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2)
The above table is constructed assuming each service call as a job.
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Prime and conversion costs
Identify the following costs as a prime cost (P), conversion cost (C), or both (B) for an automobile manufacturer.
a. Wages of employees that operate painting equipment
b. Wages of the plant manager
c. Steel
d. Oil used for assembly line machinery
Identify the following costs as a prime cost (P), conversion cost (C), or both (B) for a magazine publisher.
a. Paper used for the magazine
b. Wages of printing machine employees
c. Glue used to bind magazine
d. Maintenance on printing machines
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Classifying costs
The following is a list of costs incurred by several businesses:
a. Rent for a warehouse used to store work in process and finished products.
b. Depreciation of copying machines used by the Marketing Department.
c. Maintenance costs for factory equipment.
d. Fees charged by collection agency on past-due customer accounts.
e. Surgeon's fee for heart bypass surgery.
f. Cost of 30-second television commercial.
g. Telephone charges by president's office.
h. Travel costs of marketing executives to annual sales meeting.
i. Cost of plastic for a telephone being manufactured.
j. Pens, paper, and other supplies used by the Accounting Department in preparing various managerial reports.
k. Charitable contribution to United Fund.
l. Depreciation of tools used in production.
m. Cost of fabric used by clothing manufacturer.
n. Depreciation of robot used to assemble a product.
o. Wages of a machine operator on the production line.
p. Salary of the vice president of manufacturing operations.
q. Factory janitorial supplies.
r. Maintenance and repair costs for factory equipment.
s. Electricity used to operate factory machinery.
t. Oil lubricants for factory plant and equipment.
u. Cost of sewing machine needles used by a shirt manufacturer.
v. Fees paid to lawn service for office grounds upkeep.
w. Depreciation of microcomputers used in the factory to coordinate and monitor the production schedules.
x. Wages of production quality control personnel.
Instructions
Classify each of the preceding costs as a product cost or period cost. Indicate whether each product cost is a direct materials cost, a direct labor cost, or a factory overhead cost. Indicate whether each period cost is a selling expense or an administrative expense. Use the following tabular headings for preparing your answer, placing an "X" in the appropriate column.
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Financial vs. managerial accounting
The following statement was made by the vice president of finance of The Muppet Company: "The managers of a company should use the same information as the shareholders of the firm. When managers use the same information in guiding their internal operations as shareholders use in evaluating their investments, the managers will be aligned with the stockholders' profit objectives."
Respond to the vice president's statement.
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Management process
Three phases of the management process are controlling, planning, and decision making. Match the following descriptions to the proper phase.
Three phases of the management process are planning, directing, and controlling. Match the following descriptions to the proper phase.
Three phases of the management process are planning, directing, and controlling. Match the following descriptions to the proper phase.
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Ethics and professional conduct in business
H. Jeckel Manufacturing Company allows employees to purchase, at cost, manufacturing materials, such as metal and lumber, for personal use. To purchase materials for personal use, an employee must complete a materials requisition form, which must then be approved by the employee's immediate supervisor. Fred Rubble, an assistant cost accountant, charges the employee an amount based on H. Jeckel's net purchase cost.
Fred Rubble is in the process of replacing a deck on his home and has requisitioned lumber for personal use, which has been approved in accordance with company policy. In computing the cost of the lumber, Fred reviewed all the purchase invoices for the past year. He then used the lowest price to compute the amount due the company for the lumber.
Discuss whether Fred behaved in an ethical manner.
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Cost classifications-service company
A partial list of Swain Hotel's costs is provided below.
a. Pay-per-view movie rental costs (in rooms).
b. Training for hotel restaurant servers.
c. Champagne for guests.
d. Cost of laundering towels and bedding.
e. Cost to replace lobby furniture.
f. Cost of advertising in local newspaper.
g. Cost to mail a customer survey.
h. Cost of room mini-bar supplies.
i. Depreciation of the hotel.
j. Cost of valet parking.
k. Guest room telephone costs for long-distance calls.
l. Wages of bellhops.
m. Salary of the hotel manager.
n. Cost to paint lobby.
0. Wages of kitchen employees.
p. Wages of convention setup employees.
q. Cost of food.
r. Wages of maids.
s. Cost of soaps and shampoos for rooms.
t. Utility cost.
u. Wages of desk clerks.
v. Cost of new carpeting.
w. General maintenance supplies.
Instructions
1. What would be Swain Hotel's most logical definition for the final cost object
2. Identify whether each of the costs is to be classified as direct or indirect. For purposes of classifying each cost as direct or indirect, use the hotel guest as the cost object.
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Classifying costs as materials, labor, or factory overhead
Indicate whether each of the following costs of an automobile manufacturer would be classified as direct materials cost, direct labor cost, or factory overhead cost:
a. Steering wheel
b. Salary of test driver
c. Depreciation of welding equipment
d. V8 automobile engine
e. Wages of assembly line worker
f. Steel used in body
g. Tires
h. Assembly machinery lubricants
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Classifying costs
The following is a list of costs that were incurred in the production and sale of boats:
a. Memberships for key executives in the Bass World Association.
b. Cost of electrical wiring for boats.
c. Wood paneling for use in interior boat trim.
d. Annual bonus paid to top executives of the company.
e. Legal department costs for the year.
f. Salary of shop supervisor.
g. Salary of president of company.
h. Fiberglass for producing the boat hull.
i. Cost of normal scrap from defective hulls.
j. Oil to lubricate factory equipment.
k. Special advertising campaign in Bass World.
l. Masks for use by sanders in smoothing boat hulls.
m. Hourly wages of assembly line workers.
n. Decals for boat hull, the cost of which is immaterial to the cost of the final product.
o. Salary of chief financial officer.
p. Power used by sanding equipment.
q. Straight-line depreciation on factory equipment.
r. Cost of boat for "grand prize" promotion in local bass tournament.
s. Canvas top for boats.
t. Commissions to sales representatives, based upon the number of boats sold.
u. Yearly cost of the maintenance contract for robotic equipment.
v. Steering wheels.
w. Cost of metal hardware for boats, such as ornaments and tie-down grasps.
x. Boat chairs.
y. Annual fee to pro-fisherman Bill Tennessee to promote the boats.
z. Cost of paving the headquarters employee parking lot.
Instructions
Classify each cost as either a product cost or a period cost. Indicate whether each product cost is a direct materials cost, a direct labor cost, or a factory overhead cost. Indicate whether each period cost is a selling expense or an administrative expense. Use the following tabular headings for your answer, placing an "X" in the appropriate column.
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Managerial accounting in the management process
For each of the following managers, describe how managerial accounting could be used to satisfy strategic or operational objectives:
1. The vice president of the Information Systems Division of a bank.
2. A hospital administrator.
3. The chief executive officer of a food company. The food company is divided into three divisions: Nonalcoholic Beverages, Snack Foods, and Fast Food Restaurants.
4. The manager of the local campus copy shop.
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Classifying costs as materials, labor, or factory overhead
Indicate whether the following costs of Colgate-Palmolive Company , a maker of consumer products, would be classified as direct materials cost, direct labor cost, or factory overhead cost:
a. Maintenance supplies
b. Wages of production line employees
c. Depreciation on production machinery
d. Resins for soap and shampoo products
e. Plant manager salary for the Clarksville, Indiana, soap plant
f. Packaging materials
g. Depreciation on the Morristown, Tennessee, toothpaste plant
h. Wages paid to Packaging Department employees
i. Scents and fragrances
j. Salary of process engineers
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What are the major differences between managerial accounting and financial accounting
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Differentiate between a department with line responsibility and a department with staff responsibility.
b. In an organization that has a Sales Department and a Personnel Department, among others, which of the two departments has (1) line responsibility and (2) staff responsibility
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Cost classifications-service company
A partial list of Cottonwood Medical Center's costs is provided below.
a. Depreciation of X-ray equipment.
b. Salary of the nutritionist.
c. Cost of advertising hospital services on television.
d. Cost of improvements on the employee parking lot.
e. Cost of blood tests.
f. Operating room supplies used on patients (catheters, sutures, etc.).
g. Cost of patient meals.
h. Cost of X-ray test.
i. Depreciation on patient rooms.
j. Overtime incurred in the Patient Records Department due to a computer failure.
k. Cost of maintaining the staff and visitors' cafeteria.
l. General maintenance of the hospital.
m. Utility costs of the hospital.
n. Cost of drugs used for patients.
0. Training costs for nurses.
p. Doctor's fee.
q. Cost of laundry services for operating room personnel.
r. Nurses' salaries.
s. Salary of intensive care personnel.
t. Cost of intravenous solutions used for patients.
u. Cost of new heart wing.
Instructions
1. What would be Cottonwood Medical Center's most logical definition for the final cost object
2. Identify whether each of the costs is to be classified as direct or indirect. For purposes of classifying each cost as direct or indirect, use the patient as the cost object.
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Classifying costs as factory overhead
Which of the following items are properly classified as part of factory overhead for Caterpillar , a maker of heavy machinery and equipment
a. Factory supplies used in the Danville, Kentucky, tractor tread plant
b. Interest expense on debt
c. Amortization of patents on new assembly process
d. Steel plate
e. Plant manager's salary at Aurora, Illinois, manufacturing plant
f. Vice president of finance's salary
g. Property taxes on the Aurora, Illinois, manufacturing plant
h. Consultant fees for a study of production line employee productivity
i. Sales incentive fees to dealers
j. Depreciation on Peoria, Illinois, headquarters building
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What manufacturing cost term is used to describe the cost of materials that are an integral part of the manufactured end product
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Classifying costs
The following is a list of costs incurred by several businesses:
a. Factory operating supplies.
b. Wages of company controller's secretary.
c. Entertainment expenses for sales representatives.
d. Paper used by commercial printer.
e. Hard drives for a microcomputer manufacturer.
f. Lumber used by furniture manufacturer.
g. Salary of quality control supervisor.
h. Hourly wages of warehouse laborers.
i. Sales commissions.
j. Cost of hogs for meat processor.
k. Paper used by Computer Department in processing various managerial reports.
l. Cost of telephone operators for a toll-free hotline to help customers operate products.
m. Protective glasses for factory machine operators.
n. Maintenance and repair costs for factory equipment.
o. Costs of operating a research laboratory.
p. Packing supplies for products sold. These supplies are a very small portion of the total cost of the product.
q. Depreciation of factory equipment.
r. First-aid supplies for factory workers.
s. Seed for grain farmer.
t. Health insurance premiums paid for factory workers.
u. Wages of a machine operator on the production line.
v. Tires for an automobile manufacturer.
w. Executive bonus for vice president of marketing.
x. Costs for television advertisement.
Instructions
Classify each of the preceding costs as a product cost or period cost. Indicate whether each product cost is a direct materials cost, a direct labor cost, or a factory overhead cost. Indicate whether each period cost is a selling expense or an administrative expense. Use the following tabular headings for preparing your answer. Place an "X" in the appropriate column.
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