Week 5 (Cost concepts)

Question 1

are the costs incurred in the production (manufacture) of a product
what is this ?

Answer 1

manufacturing costs

Question 2

what are the 3 manufacturing costs ?

Answer 2

1. direct material
2. direct labor
3. manufacturing overhead

Question 3

are raw materials that become an integral part of the finished product and can be easily and efficiently traced to the product
what is this ?

Answer 3

direct materials

Question 4

if materials cannot be traced directly to products, the materials are considered ____ and are part of manufacturing overhead
what is this ?

Answer 4

indirect

Question 5

represents the payroll cost of those employees who work directly on the product being manufactured
what is this ?

Answer 5

direct labor

Question 6

the cost of employees who work in the factory but not directly on the product is considered ____ ____ and is part of manufacturing overhead
what is this ?

Answer 6

indirect labor

Question 7

represents all manufacturing costs other than direct materials and direct labor
what is this ?

Answer 7

manufacturing overhead

Question 8

• rent on factory buildings
• utilities on the factory building
• depreciation on the factory building and equipment
• property taxes on factory building
• indirect materials
• indirect labor
  what are these examples of ?

Answer 8

overhead costs

Question 9

what are the 2 key words to identify if a cost is an overhead cost ?

Answer 9

1. indirect
2. factory

Question 10

materials used to support the production process
what is this ?

Answer 10

indirect materials

Question 11

• lubricants
• cleaning supplies
  used in the automobile assembly plant are examples of what ?

Answer 11

indirect materials

Question 12

wages paid to employees who work in the factory but not directly on the product
what is this ?

Answer 12

indirect labor

Question 13

• maintenance workers
• janitors
• security guards
  are examples of what ?

Answer 13

indirect labor

Question 14

would salary paid to the CEO be classified as direct or indirect labor ?

Answer 14

neither bc they have nothing to do with the manufacturing process

Question 15

are costs incurred outside of the manufacturing process
what is this ?

Answer 15

non-manufacturing costs

Question 16

• CEOs salary
• advertising
• commissions paid to salespeople
• utilities on the administrative building
• rent on sales and administrative buildings and equipment
  what are these examples of ?

Answer 16

non-manufacturing costs

Question 17

non-manufacturing costs are typically referred to as what ?

Answer 17

S&A costs
(selling & administrative)

Question 18

the production supervisors salary is always what ?

Answer 18

considered part of overhead

Question 19

• these costs include direct materials, direct labor, and manufacturing overhead
• initially recorded as part of inventory on the balance sheet
• they are expensed on the income statement only when the inventory is sold
• manufacturing costs are referred to as ____
  what is this ?

Answer 19

product costs

Question 20

• these costs include all selling and amninstrative costs
• are never recorded as part of inventory as they have nothing to do with the production of a good
  -are recorded as an expense as soon as they are incurred
• non-manufacturing costs are referred to as ____
  what is this ?

Answer 20

period costs

Question 21

companies that produce their own product have 3 classifications of inventory, what are they ?

Answer 21

1. direct (raw) materials
2. work in process
3. finished goods

Question 22

inventory on hand and available for use
what is this ?

Answer 22

direct (raw) materials inventory

Question 23

partially completed goods
what is this ?

Answer 23

work in process inventory

Question 24

completed goods awaiting sale
what is this ?

Answer 24

finished goods inventory

Question 25

since direct materials represent both a type of inventory and a manufacturing costs, when are direct materials considered an inventory and when are they considered a manufacturing costs ?

Answer 25

• direct material inventory => when the materials have been purchased and are available in the storeroom
• direct material cost => when the materials are actually used in the production of goods

Question 26

with product costs (DM used, DL, and overhead) they are initially recorded as part of inventory but what specific inventory ?

Answer 26

work in process
- these costs are attached to units that are being produced, so when goods are completed the costs associated with those goods will transfer to finished goods inventory

Question 27

the transfer (the costs transferred from work in process to finished goods) is called ?

Answer 27

cost of goods manufactured

Question 28

these costs (and units) will remain in finished goods until the units are sold at which time the costs are transferred to the income statements as the expense ?

Answer 28

cost of goods sold