Exercise 2-1

EXERCISE 2-1  Classifying Manufacturing Costs  [LO1]

Your Boat, Inc., 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 Gig Harbor, Washington, boathouse. Below are listed some of the costs that are incurred at the company.

Required:

For each cost, indicate whether it would most likely be classified as direct labor, direct materials, manufacturing overhead, selling, or an administrative cost.

1. |    | The wages of employees who build the sailboats.-DL |

2. |    | The cost of advertising in the local newspapers.-Selling cost |

3. |    | The cost of an aluminum mast installed in a sailboat.-DM |

4. |    | The wages of the assembly shop's supervisor.-MO |

5. |    | Rent on the boathouse.-MO/Admin Cost |

6. |    | The wages of the company's bookkeeper.-Admin Cost |

7. |    | Sales commissions paid to the company's salespeople.-Selling Cost |

8. |    | Depreciation on power tools.-MO |

EXERCISE  2-2  Classification of Costs as Period or Product Costs [LO2]

Suppose that you have been given a summer job at Fairwings Avionics, a company that manufactures sophisticated radar sets for commercial aircraft. 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.

Required:

Classify each cost listed below as either a product cost or a period cost for purposes of preparing the financial statements for the bank.

1. |   | The cost of the memory chips used in a radar set.-Product |

2. |   | Factory heating costs.-Product |

3. |   | Factory equipment maintenance costs.- Product |

4. |   | Training costs for new administrative employees.-Period |

5. |   | The cost of the solder that is used in assembling the radar sets. -Product |

6. |   | The travel costs of the company's salespersons. .-Period |

7. |   | Wages...