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