Classifying costs Wheels, Inc. manufactures wheels for bicycles, tricycles, and scooters. For each cost given below, determine if the cost is a product cost or a period cost. If the cost is a product cost, further determine if the cost is direct materials (DM), direct labor (DL), or manufacturing overhead (MOH) and then determine if the product cost is a prime cost, conversion cost, or both. If the cost is a period cost, further determine if the cost is a selling expense or administrative expense (Admin). Cost (a) is answered as a guide

Cost Product Period

DM DL MOH Prime Conversion Selling Admin.

a. Metal used for rims

b. Sales salaries

c. Rent on factory

d. Wages of assembly workers

e. Salary of production supervisor

f. Depreciation on office equipment

g. Salary of CEO

h. Delivery expense

Short Answer

Expert verified

The classification of cost is done as per the requirement.

Step by step solution

01

Step-by-Step SolutionStep 1 Definition of Direct materials

Direct materials are defined as the cost incurred by the business on raw materials which are directly associated with the production process.

02

Step 2:  Classification of cost

Cost
Product
Period

DM

DL

MOH

Prime

Conversation

Selling

Admin.

A

X

X

B

X

C

X

X

D

X

X

X

E

X

X

F

X

G

X

H

X

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Most popular questions from this chapter

Distinguishing between direct and indirect costs Granger Cards is a manufacturer of greeting cards. Classify its costs by matching the costs to the terms.

  1. Direct materials
  2. Direct labor
  3. Indirect materials
  4. Indirect labor
  5. Other manufacturing overhead

a. Artists’ wages

b. Wages of materials warehouse workers

c. Paper

d. Depreciation on manufacturing equipment

e. Manufacturing plant manager’s salary

f. Property taxes on manufacturing plant

g. Glue for envelopes

Selected data for three companies are given below. All inventory amounts are ending balances and all amounts are in millions.

Company A Company B Company C

Cash \( 6 Wages Expense \) 12 Administrative Expenses $ 4

Net Sales Revenue 48 Equipment 32 Cash 25

Finished Goods Inventory 10 Accounts Receivable 8 Net Sales Revenue 75

Cost of Goods Sold 23 Service Revenue 65 Selling Expenses 8

Selling Expenses 4 Cash 34 Merchandise Inventory 12

Equipment 67 Rent Expense 12 Equipment 55

Work-in-Process Inventory 9 Accounts Receivable 19

Accounts Receivable 14 Cost of Goods Sold 25

Cost of Goods Manufactured 23

Administrative Expenses 7

Raw Materials Inventory 6

Using the data on the previous page, calculate total current assets for each company

Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost:

a. Salaries of scientists studying ways to speed forest growth.

Give five examples of manufacturing overhead.

Question:Classifying period costs and product costs

Lawlor, Inc. is the manufacturer of lawn care equipment. The company incurs the following costs while manufacturing weed trimmers:

• Shaft and handle of weed trimmer

• Motor of weed trimmer

• Factory labor for workers assembling weed trimmers

• Nylon thread used by the weed trimmer (not traced to the product)

• Glue to hold the housing together

• Plant janitorial wages

• Depreciation on factory equipment

• Rent on plant

• Sales commissions

• Administrative salaries

• Plant utilities

• Shipping costs to deliver finished weed trimmers to customers

Requirements

1. Describe the difference between period costs and product costs.

2. Classify Lawlor’s costs as period costs or product costs. If the costs are product costs, further classify them as direct materials, direct labor, or manufacturing overhead.

See all solutions

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