Question

Gala Company is a manufacturer of laptop computers. Various costs and expenses associated with its operations are as follows.

The company intends to classify these costs and expenses into the following categories: (a) direct materials, (b) direct labor, (c) manufacturing overhead, and (d) period costs.

For each item, indicate the cost category to which it belongs.

		Item		Category
1.		Property taxes on the factory building.		Period Costs Direct Materials Direct Labor Manufacturing Overhead Direct Materials and Manufacturing Overhead
2.		Production superintendents’ salaries.		Period Costs Direct Materials and Manufacturing Overhead Direct Materials Manufacturing Overhead Direct Labor
3.		Memory boards and chips used in assembling computers.		Manufacturing Overhead Direct Materials and Manufacturing Overhead Direct Labor Direct Materials Period Costs
4.		Depreciation on the factory equipment.		Direct Materials Direct Materials and Manufacturing Overhead Direct Labor Manufacturing Overhead Period Costs
5.		Salaries for assembly-line quality control inspectors.		Direct Materials and Manufacturing OverheadDirect MaterialsPeriod CostsDirect Labor or Manufacturing Overhead
6.		Sales commissions paid to sell laptop computers.		Period CostsManufacturing OverheadDirect Materials and Manufacturing OverheadDirect LaborDirect Materials
7.		Electrical components used in assembling computers.		Manufacturing OverheadDirect MaterialsPeriod CostsDirect Materials and Manufacturing OverheadDirect Labor
8.		Wages of workers assembling laptop computers.		Period CostsDirect Materials and Manufacturing OverheadDirect LaborDirect MaterialsManufacturing Overhead
9.		Soldering materials used on factory assembly lines.		Direct Materials and Manufacturing OverheadDirect LaborManufacturing OverheadPeriod CostsDirect Materials
10.		Salaries for the night security guards for the factory building.		Manufacturing OverheadPeriod CostsDirect Materials and Manufacturing OverheadDirect MaterialsDirect Labor

Answer 1

Concepts and reason

Cost accounting: Cost accounting refers to the process of recording, classifying, summarizing, allocating and analysing the different alternative measures to control costs. Its purpose is to guide the management on how to control costs effectively and maximize productivity. It provides detailed information of the costs that needs to be focused and find out the alternative course of actions to control the costs in the future.

Absorption costing: The methods of computing the cost of a product by taking into account both direct expenses and indirect costs. Absorption costing includes direct cost in producing a good as the cost base. It includes direct materials, direct labor, fixed manufacturing overhead and variable manufacturing overhead.

Fundamentals

Period cost: Period costs are the costs that are associated with the operational activities. It includes salaries or remuneration, selling expense, advertising expenses, packaging, and distribution expenses.

Direct materials: Direct materials are the raw materials that are directly associated with the production of the goods in the factory. Direct material per unit is the cost of direct material incurred to produce one unit of product.

Direct labor costs: Direct labor cost is wages that are incurred in direction to manufacture specific goods services to customers. The total amount of direct labor cost is much more than wages paid.

Manufacturing overhead costs: The costs which do not relate directly with the manufacturing of products are referred to as manufacturing overhead costs or indirect costs.

The following items are coming under the category of manufacturing overhead.

Property taxes on the factory building.

Production superintendents’ salaries.

Depreciation on the factory equipment.

Soldering materials used on factory assembly lines.

Salaries for the night security guards for the factory building.

The following items are coming under the category of direct materials.

Memory boards and chips used in assembling computers.

Electrical components used in assembling computers.

The following items are coming under the category of direct labor.

Salaries for assembly-line quality control inspectors.

Wages of workers assembling laptop computers.

The following items are coming under the category of period costs.

Sales commissions paid to sell laptop computers.

Classification is given below:

Ans: