Lesson 2 Cost Concepts & Behavior

Seatwork 1
Seths Skateboard Company incurs the costs listed below. Determine whether the following is a
Direct Cost (DC) or Indirect Cost (IC).
1.
2.
3.
4.
5.

Production supervisor salary

Cost of fiberglass
Wages of assembly person
Sales commission
Cost of high grade wheels

6.
7.
8.
9.

Screws
Factory rent
Wages of skateboard painter
Factory utilities

Seatwork 2
Daisy Ryan Shirt Shop manufactures T-shirts and decorated them with custom designs for retail sale
on the premises. Determine whether the following is a Manufacturing cost (MC) or Nonmanufacturing cost (NC).
1.
2.
3.
4.
5.
6.
7.
8.
9.

Cost of fabric used in T-shirts.

Wages of shirtmakers.
Cost of new sign in front of retail T-shirt shop.
Wages of employee who repairs the firms sewing machines.
Cost of electricity used in the sewing department.
Wages of T-shirt designers and painters.
Wages of sales personnel.
Depreciation of sewing machines.
Rent on the building. Part of the buildings first floor is used to make and paint
T-shirts. Part of it is used for the retail shop. The second floor is used for
administrative offices and storages of raw materials and finished goods.
10. Cost of daily advertisements in local media.
11. Wages of designers who experiment with new fabrics, paints, and T-shirt
designs.
Seatwork 3
Cotton White Inc., makes specialty clothing for chefs. The company reported the following costs for
2016:
Factory rent

42,000

Presidents salary

Company advertising

18,000

Wages paid to seamstresses

Depreciation on salespersons
vehicles
Thread

75,000
25,000

Premium quality cotton

material
Buttons
Factory insurance

Utilities for factory

22,000

Cutting room supervisors salary

30,000

Compute for the following:

1. Direct materials
2. Direct labor
3. Manufacturing overhead
4. Total manufacturing cost
5. Prime cost

1,000

Depreciation on sewing
machines
Wages paid to cutters

75,0
00
42,0
00
750
15,0
00
6,00
0
50,0
00

6. Conversion cost
7. Total period cost

Seatwork 4
Classify the following as:
Product cost
- Direct materials
- Direct labor
- Manufacturing overhead

Period cost
- Distribution costs
- Administrative expenses
- Finance costs

1.
2.
3.
4.

Wood is used in the manufacture of the tables, at a cost P100 per table.
The tables are assembled by workers, at a cost of P40 per table.
Workers assembling the tables are supervised by a factory supervisor.
Electrical costs of P20 per machine hour are incurred in the factory in the manufacture of
tables.
5. The depreciation cost of the machines used in the manufacture of tables is P40,000 per year.
6. The salary of the president of the company is P10,000 a month.
7. The company spends P250,000 per year to advertise its products.
8. Salesperson are paid a commission of P300 for each table sold.
9. Rent paid for the factory building is P20,000 a month.
10.Insurance premiums paid for the general office is P15,000 per year.
Seatwork 5
The following is a partial list of costs incurred last month by the Salem Foam Company:
Product advertising
Fire insurance premium for factory
Electricity, sales office
Lubricating oil for sewing machines
Foam materials used in production
Assembly line workers wages
Rent, factory building
Freight out
Salary, company president
Property taxes, corporate headquarters

20,000
5,000
2,000
4,000
32,000
46,000
10,000
6,000
25,000
3,000

1. What amount of these costs would be considered manufacturing overhead?

a. 19,000
c. 45,000
b. 51,000
d. 97,000
2. What amount of these costs would be considered period costs?
a. 30,000
c. 45,000
b. 56,000
d. 97,000
3. What amount of these costs would be considered product costs?
a. 56,000
c. 97,000
b. 103,000
d. 153,000
Seatwork 6
Calculate the missing amounts:

Case
A
B
C
D
E

Prime
Cost
9,400
(3)
55,300
(8)
(10)

Conversi
on Cost
16,100
(4)
107,500
47,350
(11)

Direct
Material
s
4,300
12,000
43,200
21,400
(12)

Direct
Labor
(1)
7,300
(5)
13,250
15,100

Manufacturi
ng
Overhead
11,000
24,500
(6)
(9)
22,900

Total
Manufacturi
ng Cost
(2)
43,800
(7)
68,750
55,700

Seatwork 7
Donna is a cost accountant for Northwind Corp. She is very efficient and hardworking, however, she
occasionally transposes numbers when recording transactions. While working late recently, Dona
accidentally recorded P19,000 of advertising cost instead of P91,000. The transaction was correctly
recorded in all other respects.
Required: Explain how Donnas error will affect the following:
1. Manufacturing costs
2. Inventory
3. Cost of Goods Sold
4. Period expenses
5. Net income
Seatwork 8
For each of the following costs incurred in a manufacturing operation, indicate whether the costs
would be fixed (F) or variable (V) and whether it would be direct materials (DM), direct labor (DL),
manufacturing overhead (MO), distribution costs (D) or administrative expenses (A).
1. Depreciation, executive jet
2. Wood used in manufacturing furniture
3. Sales managers salary
4. Secretary to the company president
5. Sand used in manufacturing concrete
6. Supervisors salary, factory
7. Executive life insurance
8. Salary, assembly-line workers
9. Advertising costs
10.Lubricants for production equipment
Seatwork 9
Mighty Muffler, Inc. operated an automobile service facility, which specializes in replacing mufflers
on cars. The following table shows the costs incurred during the month when 750 mufflers were
replaced.
Number of Muffler Replacements
500
750
1,000
Total costs
Fixed costs
Variable costs
Total costs
Cost
per
muffler
replacement
Fixed costs
Variable costs
Total costs per
replacement

a.
b.
c.

60,000
37,500
97,500

j.
k.
l.

d.
e.

g.
h.

m.
n.

f.

i.

o.

Seatwork 10
Marvin Santos prepared the following cost equation for four of the costs of Marvin Company:
Utilities
Insurance
Shipping
Maintenanc
e

Y
Y
Y
Y

=
=
=
=

P3.60 + P4.50X
P29,300 + P0.30X
P24,600
P6.75X

Classify the above as to fixed, variable or semi-variable

Utilities
Insurance
Shipping
a.
Variable
Variable
Fixed
b.
Semi-variable
Variable
Fixed
c.
Semi-variable
Semi-variable
Fixed
d.
Fixed
Fixed
Variable

Maintenance
Semi-variable
Variable
Variable
Semi-variable

Seatwork 11
The following items appeared in the records of Nona Company for the current year. Each question is
based on the production and sales of 2,000 units.
Sales price per unit
Fixed costs:

P800 per unit

Marketing and administrative

Manufacturing overhead
Variable costs
Marketing and administrative
Manufacturing overhead
Direct labor
Direct materials

P400,000 per
period
200,000 per
period
P50
P80
P100
P200

per
per
per
per

unit
unit
unit
unit

1. What is the variable manufacturing cost per year?

a. 380
c. 480
b. 450
d. 730
2. What is the total variable cost per unit (manufacturing and non-manufacturing)?
a. 380
c. 480
b. 430
d. 730
3. What is the conversion cost per unit?
a. 100
b. 280

c. 300
d. 480

4. What is the prime cost per unit?

a. 100
b. 280

c. 300
d. 480

Seatwork 12
Square has made the following cost estimates for his three largest expenses:
For 12
For 16
Customer Customer
s
s
Payroll
300
400
Answering service
74
82
Office rent
270
290
What terms would best describe the cost behavior of the above costs?
Payroll
Answering service
Office rent
a.
Mixed
Variable
Variable
b.
Variable
Mixed
Fixed
c.
Variable
Mixed
Mixed
d.
Mixed
Mixed
Mixed
e.
Fixed
Mixed
Mixed

For 20
Customer
s
500
90
310