More Practices For CH1-CH3

[EXERCISE 2-1] Classifying Manufacturing Costs

The costs below all relate to Sounds Good, a company based in Alberta that
manufactures high-end audio equipment such as speakers, receivers, CD players,
turntables, and home theatre systems. The company owns all of the manufacturing
facilities (building and equipment) but rents the space used by the non-
manufacturing employees (accounting, marketing, sales, human resources).

Required: For each cost, indicate whether it would most likely be classified as a direct
labour, direct material, manufacturing overhead, marketing and selling, or
administrative cost.

1. Depreciation, taxes, and insurance on the manufacturing facilities.

2. Rent on the office space used by the non-manufacturing staff.

3. Salaries paid to the employees who produce the audio equipment.

4. Cost of the glue used to fasten the company's logo to the grill used on all of
its speakers.

5. The cost of online advertising.

6. Salaries paid to the accounting employees.

7. Salary paid to the production manager who supervises the manufacturing

activities for all products.

8. Cost of the plastic used for turntable dust covers.

9. Bonuses paid to sales staff for meeting their monthly sales goals.

10. Salary paid to the manager of the human resources department.

[EXERCISE 2-2] Classification of Costs as Period or Product Costs

Suppose that you have a summer job at Remotely Speaking, a company that
manufactures sophisticated portable two-way radio transceivers for remote-
controlled military reconnaissance missions. The company, which is privately owned,
has approached a bank for a loan to help finance its tremendous growth. The bank
requires financial statements before approving such a loan. You have been asked to
help pre- pare the financial statements and are given the following list of costs:

1. Depreciation on salespeople's cars.

2. Rent on equipment used in the factory.
3. Lubricants used for machine maintenance.
4. Salaries of personnel who work in the finished goods warehouse.
5. Soap and paper towels used by factory workers at the end of a shift.
6. Factory supervisors' salaries.
7. Heat, water, and power consumed in the factory.
8. Materials used for boxing company products for shipment overseas. (Units
are not normally boxed.)
9. Advertising costs.
10. Workers' Compensation insurance for factory employees.
11. Depreciation on chairs and tables in the factory lunchroom.
12. The wages of the receptionist in the administrative offices.
13. Cost of leasing the corporate jet used by the company's executives.
14. The cost of renting rooms at a British Columbia resort for the annual sales
conference.
15. The cost of packaging the company's product.