Question

Gala Company is a manufacturer of laptop computers. Various costs and expenses associated with its operations are as follows.

The company intends to classify these costs and expenses into the following categories: (a) direct materials, (b) direct labor, (c) manufacturing overhead, and (d) period costs.
For each item, indicate the cost category to which it belongs.
Item Category
1. Property taxes on the factory building. Gala Company is a manufacturer of laptop computers Period Costs Direct Materials Direct Labor Manufacturing Overhead Direct Materials and Manufacturing Overhead
2. Production superintendents’ salaries. Gala Company is a manufacturer of laptop computers Period Costs Direct Materials and Manufacturing Overhead Direct Materials Manufacturing Overhead Direct Labor
3. Memory boards and chips used in assembling computers. Gala Company is a manufacturer of laptop computers Manufacturing Overhead Direct Materials and Manufacturing Overhead Direct Labor Direct Materials Period Costs
4. Depreciation on the factory equipment. Gala Company is a manufacturer of laptop computers Direct Materials Direct Materials and Manufacturing Overhead Direct Labor Manufacturing Overhead Period Costs
5. Salaries for assembly-line quality control inspectors. Gala Company is a manufacturer of laptop computers Direct Materials and Manufacturing OverheadDirect MaterialsPeriod CostsDirect Labor or Manufacturing Overhead
6. Sales commissions paid to sell laptop computers. Gala Company is a manufacturer of laptop computers Period CostsManufacturing OverheadDirect Materials and Manufacturing OverheadDirect LaborDirect Materials
7. Electrical components used in assembling computers. Gala Company is a manufacturer of laptop computers Manufacturing OverheadDirect MaterialsPeriod CostsDirect Materials and Manufacturing OverheadDirect Labor
8. Wages of workers assembling laptop computers. Gala Company is a manufacturer of laptop computers Period CostsDirect Materials and Manufacturing OverheadDirect LaborDirect MaterialsManufacturing Overhead
9. Soldering materials used on factory assembly lines. Gala Company is a manufacturer of laptop computers Direct Materials and Manufacturing OverheadDirect LaborManufacturing OverheadPeriod CostsDirect Materials
10. Salaries for the night security guards for the factory building. Gala Company is a manufacturer of laptop computers Manufacturing OverheadPeriod CostsDirect Materials and Manufacturing OverheadDirect MaterialsDirect Labor

Answer 1

Item 1

Property taxes on the factory building = Manufacturing Overhead

Item 2

Production superintendents’ salaries = Manufacturing Overhead

Item 3

Memory boards and chips used in assembling computers = Direct Materials

Item 4

Depreciation on the factory equipment = Manufacturing Overhead

Item 5

Salaries for assembly-line quality control inspectors = Manufacturing Overhead

Item 6

Sales commissions paid to sell laptop computers = Period Costs

Item 7

Electrical components used in assembling computers = Direct Materials

Item 8

Wages of workers assembling laptop computers = Direct Labor

Item 9

Soldering materials used on factory assembly lines = Manufacturing Overhead

Item 10

Salaries for the night security guards for the factory building = Manufacturing Overhead

Step-by-step explanation:

Direct Materials and Direct Labor are direct Product Costs. They can be easily traced on to the Product being manufactured - laptop computers. These include Memory boards and chips and Wages of workers assembling laptop computers.

Manufacturing Overhead can not be easily traced to the Product being manufactured. They do need to be allocated to the Products being manufactured through cost drivers. These include Soldering materials used on factory assembly lines and Production superintendents’ salaries.

Period Costs are Non - Manufacturing Costs. They are Expensed in the Income Statement in the period in which they are incurred and are not included in Product Cost. These include Sales commissions paid to sell laptop computers.