Accounting

Solutions to

Homework Problems for Basic Cost Concepts & Terminology

by David Albrecht

Solution to Problem #1

Classifying Manufacturing Costs. The Sale Away Company assembles custom sailboats from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a boathouse. 1. 2. 3. 4. 5. 6. 7. 8. The wages of employees who build the sailboats. Product/Direct labor The cost of advertising in the local newspapers. Period/Selling The cost of an aluminum mast installed in a sailboat. Product/Direct material The wages of the assembly shop’s supervisor. Product/Manufacturing overhead Rent on the boathouse. Allocated between manufacturing overhead and selling The wages of the company’s bookkeeper. Period/Administrative, but some might be allocated to manufacturing overhead. Sales commissions paid to the company’s salespeople. Period/Selling Depreciation on power tools. Product/Manufacturing overhead

Solution to Problem #2

Classification of Costs as Period or Product Costs. Fairwings Avionics is a company that manufactures sophisticated radar sets for commercial aircraft. 1. 2. 3. 4. 5. The cost of the memory chips used in a radar set. Product/Direct materials Factory heating costs. Product/Manufacturing overhead Factory equipment maintenance costs. Product/Manufacturing overhead Training costs for new administrative employees. Period/Administrative The cost of the solder that is used in assembling the radar sets. Product/Direct material, but some might assign it to manufacturing overhead because it such a little cost and not worth tracking. The travel costs of the company’s salespersons. Period/Selling Wages and salaries of factory security personnel. Product/Manufacturing overhead The cost of air-conditioning executive offices. Period/Administrative Wages and salaries in the department that handles billing customers. Period/Administrative Depreciation on the equipment in the fitness room used by...