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.