General Cost classification Acct 226
Prime cost
direct materials and direct labor
Direct labor is also referred to as
touch labor
Which of the following would be a MOH cost? a) boxes used to ship products to customers b) property insurance on factory c) factory supervisor's salaries d) wages of workers painting a product e) thread in a shirt factory
B C E
Which of the following costs would be VARIABLE with respect to the number of cones sold at Baskins & Robbins? a) cost of lighting the shop b) cost of napkins for customers c) wages of the shop manager d) cost of ice cream
B D
Which of the following would be a period cost? a) manufacturing equipment depreciation b) property taxes on corporate headquarters c) direct materials costs d) electrical costs to light the production facility e) sales commissions
B E *hint* SG&A
Which of the following would be a prime cost? a) cost of paper towels in the factory b) company president salary c) milk used to make ice cream d) cake decorator's wages in a bakery e) engines used in producing lawn mowers
C D E *hint* direct materials and direct labor
Product costs=
DM + DL + MOH (inventoriable costs)
Differential cost & Benefit Example: Your job pays $1,500 a month. You have a job offer farther away for $2,000 per month. The commuting cost is $300 per month. Differential revenue= Differential cost= Net Differential benefit=
Differential revenue= $2,000 - $1,500 = $500 Differential cost= $300 Net Differential benefit= $200
labor costs that can be easily traced to individual units of product.
Direct Labor (DL)
raw materials that become part of a product and can be easily traced to it
Direct Materials (DM)
Three types of manufacturing costs
Direct Materials (DM), Direct Labor (DL), Manufacturing Overhead (MOH)
Type of cost: executive/administrative salaries
General & administrative
Type of cost: office rent, office utilities, depreciation on office machines, office supplies
General & administrative
3 things that full under Manufacturing Overhead
General manufacturing cots, indirect labor, indirect materials
Costs that can not be easily traced. All other costs incurred while making a product.
Manufacturing Overhead (MOH)
Period costs=
SG&A costs, related to the office or selling of product
Examples of direct materials
Steering wheel, engine, tires, leather seats
variable cost total ____ as activity level changes
changes
fixed costs per unit _____ as the activity level changes (_____ relationship)
changes, inverse
Conversion cost
direct labor and manufacturing overhead
Examples of variable cost
direct materials, direct labor, shipping costs, sales commission
fixed costs total ____ over wide range of activity
does not change
variable cost per unit ____ over wide ranges of activity
does not change
Indirect labor examples
factory supervisors, maintenance workers, janitors, security guards, AT FACTORY
MOH- General Manufacturing costs examples
factory utilities, depreciation on factory machines, property taxes on factory, insurance on factory
in period costs, expenses are
incurred. Expenses > incomes statement
Materials not directly traceable to production
indirect materials
indirect materials examples
nails, glue, materials used in the factory like oil for machines, cleaning supplies, etc.
potential benefit that is given up when one alternative is selected over another. NOT RECORDED in accounting records but should be considered in decision making
opportunity cost.
3 types of inventory on balance sheet:
raw materials inventory, work in process inventory, finished goods inventory
examples of fixed costs
rent, property taxes, advertising, depreciation (straight-line), supervisors salaries
Type of cost: advertising
selling cost
Type of cost: delivery cost
selling cost
Type of cost: sales salaries/ commissions
selling cost
Type of cost: warehouse costs (finished goods)
selling cost
What happens to SOLD product costs
sold > COGS > income statement
___ cannot be changed by any decision in the future. Not differential costs and should be ignored when making future decisions.
sunk cost
What happens to UNSOLD product costs
unsold > inventory > balance sheet
example of direct labor
wages paid to assembly line workers