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Chapter 16: Q15E (page 890)

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

Give five examples of manufacturing overhead.

1. What is the primary purpose of managerial accounting?

Becky Knauer recently resigned from her position as controller for Shamalay Automotive, a small, struggling foreign car dealer in Upper Saddle River, New Jersey. Becky has just started a new job as controller for Mueller Imports, a much larger dealer for the same car manufacturer. Demand for this particular make of car is exploding, and the manufacturer cannot produce enough to satisfy demand. The manufacturer鈥檚 regional sales managers are each given a certain number of cars. Each sales manager then decides how to divide the cars among the independently owned dealerships in the region. Because of high demand for these cars, dealerships all want to receive as many cars as they can from the regional sales manager.

Becky鈥檚 former employer, Shamalay Automotive, receives only about 25 cars each month. Consequently, Shamalay is not very profitable.

Becky is surprised to learn that her new employer, Mueller Imports, receives more than 200 cars each month. Becky soon gets another surprise. Every couple of months, a local jeweler bills the dealer $5,000 for 鈥渕iscellaneous services.鈥� Franz Mueller, the owner of the dealership, personally approves payment of these invoices, noting that each invoice is a 鈥渟elling expense.鈥� From casual conversations with a salesperson, Becky learns that Mueller frequently gives Rolex watches to the manufacturer鈥檚 regional sales manager and other sales executives. Before talking to anyone about this, Becky decides to work through her ethical dilemma. Put yourself in Becky鈥檚 place.

Requirements

1. What is the ethical issue?

2. What are your options?

3. What are the possible consequences?

4. What should you do?

Question:Calculating income and cost per unit for a merchandising company

Conway Brush Company sells standard hair brushes. The following information summarizes Conway鈥檚 operating activities for 2018:

Selling and Administrative Expenses $ 47,058

Purchases 85,800

Net Sales Revenue 151,800

Merchandise Inventory, January 1, 2018 7,920

Merchandise Inventory, December 31, 2018 11,748

Requirements

1. Calculate the operating income for 2018.

2. Conway sold 6,600 brushes in 2018. Compute the unit cost for one brush.

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
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