Q15E - Horngren'S Financial And Managerial Accounting

Question

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

Step-by-Step Solution

Answer

The classification of cost is done as per the requirement.

Step-by-Step Solution Step 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.

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