Managerial Accounting M2: Prep Exercises
4. Sales commissions paid to the company's salespeople.
Administrative cost
6. The wages of the company's accountant.
Administrative cost
4a Cost of the new color laser printer
Differential Cost
8a Cost of electricity to run the X-ray machines
Differential Cost
EX: Cost of X-ray film used in the old machine
Differential Cost
6a The cost of maintaining the old machine
Differential cost
Direct/Indirect: Cost - Lab tests by outside contractor Cost Object - A particular department
Direct Cost
Direct/Indirect: Cost - Lab tests by outside contractor Cost Object - A particular patient
Direct Cost
Direct/Indirect: Cost - Prescription drugs Cost Object - A particular patient
Direct Cost
Direct/Indirect: Cost - The salary of the head of pediatrics Cost Object - The pediatric department
Direct Cost
Direct/Indirect: Cost - The wages of pediatric nurses Cost Object - The pediatric department
Direct Cost
Direct/Indirect: Cost - Catered food served to patients Cost Object - A particular patient
Direct Cost
3. The wages of employees who assemble computers from components.
Direct Labor cost
The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that are incurred at the company. For each cost, indicate whether it would most likely be classified as direct labor, direct materials, manufacturing overhead, selling, or an administrative cost. (1 - 8) 1. The cost of a hard drive installed in a computer.
Direct Materials Cost
Conversion Cost =
Direct labor + Manufacturing overhead
Prime Cost =
Direct materials + Direct labor
Product Cost =
Direct materials + Direct labor + Manufacturing overhead
Direct/Indirect: Cost - Heating the hospital Cost Object - The pediatric department
Indirect Cost
Direct/Indirect: Cost - Hospital chaplain's salary Cost Object - A particular patient
Indirect Cost
Direct/Indirect: Cost - The salary of the head of pediatrics Cost Object - A particular pediatric patient
Indirect Cost
5. The wages of the assembly shop's supervisor.
Manufacturing Overhead cost
7. Depreciation on equipment used to test assembled computers before release to customers.
Manufacturing Overhead cost
8. Rent on the facility in the industrial park.
Manufacturing Overhead cost
2. The cost of advertising in the Puget Sound Computer User newspaper.
Marketing and Selling cost
2a The salary of the head of the Radiology Department
None
3a The salary of the head of the Pediatrics Department
None
5a Rent on the space occupied by Radiology
None
7a Benefits from a new DNA analyzer
Opportunity cost
12A The wages of the receptionist in the administrative offices
Period Cost
13A Cost of leasing the corporate jet used by the company's executives
Period Cost
14A The cost of renting rooms at a Florida resort for the annual sales conference
Period Cost
1A Depreciation on salespersons' car
Period Cost
4A Salaries of personnel who work in the finished goods warehouse
Period Cost
8A Materials used for boxing products for shipment overseas (units are not normally boxed)
Period Cost
9A Advertising costs
Period Cost
10A Workers' compensation insurance for factory employees
Product Cost
11A Depreciation on chairs and tables in the factory lunchroom
Product Cost
15A The cost of packaging the company's product
Product Cost
2A Rent on equipment used in the factory
Product Cost
3A Lubricants used for machine maintenance
Product Cost
5A Soap and paper towels used by factory workers at the end of a shift
Product Cost
6A Factory supervisors' salaries
Product Cost
7A Heat, water, and power consumed in the factory
Product Cost
Period Cost =
Selling expenses + Administrative expenses
1a Cost of the old X-ray machine
Sunk Cost
Direct Cost:
is a cost that can be easily and conveniently traced to a specified cost object. EX: Reebok is assigning costs to its various regional and national sales offices, then the salary of the sales manager in its Tokyo office would be a direct cost of that office.
Indirect Cost:
is a cost that cannot be easily and conveniently traced to a specified cost object EX: Campbell Soup factory may produce dozens of varieties of canned soups. The factory manager's salary would be an indirect cost of a particular variety such as chicken noodle soup.
