Question

d) Within the costing system of Asempa manufacturing company the following types of expense are incurred. GHC Cost of oils used to lubricate production machinery 20,000 Motor vehicle licences for lorries 50,000 Depreciation of factory plant and equipment 40,000 Cost of chemicals used in the laboratory 10,000 Commission paid to sales representatives 25,000 Salary of the secretary to the finance director 22,000 Trade discount given to customers 12,000 Holiday pay of machine operatives 32,000 Salary of security guard in raw material warehouse 15,000 Fees to advertising agency 8,000 Rent of finished goods warehouse 6,000 Salary of scientist in laboratory 5,000 Insurance of the company's premises 16,000 Salary of supervisor working in the factory 7,000 Cost of typewriter ribbo in the general office 14,000 Protective clothing for machine operatives 36,000 Required Calculate the amount of expenses incurred under the correct cost classification according to function. [Note: Each type of expense should appear only once in your answer.]

Answer 1

CLASSIFICATION OF COSTS

(1) Production cost
Cost of oil used to lubricate production machinery	20,000
Depreciation of factory,plant and equipment	40,000
Holiday pay of machine operatives	32,000
Salary of security guard in raw material warehouse	15,000
Salary of supervisor working in the factory	7,000
Protective cloth for machine operatives	36,000
(2) Administrative cost:
Salary of the secretary to the finance director	22,000
Insurance of company's premises	16,009
Cost of typewriter ribbon in the general office	14,000
(3) Selling cost:
Commission paid to sales representative	25,000
Trade discount given to customer	12,000
Fees to advertising agency	8,000
Rent of finished goods warehouse	6,000
(4) Distribution cost:
Motor vehicles license for lorries	50,000
(5) Research and development cost:
Cost of chemicals used in the laboratory	10,000
Salary of scientists in laboratory	5,000

EXPLANATION

There are major five main function of cost classification:

(1) Production cost: Production cost involves cost of all items used in the production of products or services. It includes all direct and indirect cost related to the production.

(2) Administrative cost: Administrative cost involves all expenses incurred for general management of an organisation.

(3) Selling cost: Selling cost involves all costs related to Selling of products and for sales promotion activities.

(4) Distribution cost: Distribution cost involves all cost incurred in handling a product until it reaches to the customers.

(5) Research and development cost:

Research and development cost involves all costs that incurred for research to improve quality of product and develop a new product.

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