3. A company could treat the cost of fringe benefits relating to direct labor
workers as part of manufacturing overhead. This approach spreads the
cost of such fringe benefits over all units of output. Alternatively, the
company could treat the cost of fringe benefits relating to direct labor
workers as additional direct labor cost. This latter approach charges the
costs of fringe benefits to specific jobs rather than to all units of output.
Problem 2-14 (30 minutes)
Product Cost Period
(selling
Oppor-
admin.) and
Manufac-
tunity
turing
Materials Direct
Labor
Cost Direct
Overhead
Cost Fixed
Cost
Name of the Cost Variable
Cost Sunk
Rental revenue forgone, $30,000 Cost
per year ... X
Direct materials cost, $80 per unit .. X X
Rental cost of warehouse, $500
per month ... X X
Rental cost of equipment, $4,000
per month ... X X
Direct labor cost, $60 per unit ... X X
Depreciation of the annex space,
$8,000 per year ... X X X
Advertising cost, $50,000 per year.. X X
Supervisor's salary, $1,500 per
month... X X
Electricity for machines, $1.20 per
unit... X X
Shipping cost, $9 per unit ... X X
Return earned on investments,
$3,000 per year ... X
Problem 2-15 (30 minutes)
Note to the Instructor: There may be some exceptions to the answers below. The purpose of this prob-
lem is to get the student to start thinking about cost behavior and cost purposes; therefore, try to avoid
lengthy discussions about how a particular cost is classified.
Variable or Selling Adminis-
trative Manufacturing
(Product) Cost
Cost Item Fixed Cost Cost Direct Indirect
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