Question

The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are 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. (You may select more than one answer. Boxes left with question marks will be graded as incorrect.)
1. cost of hard drive installed on computer: Direct materials cost
2. the cost of advertising in the Puget Sound computer user newspaper: marketing and selling cost
3. the wages of employees who assmble computers from components: direct labor cost
4. sales commissions paid to the company's salespeople: marketing and selling cost
5. the wages of the assembly shop's supervisor: manufacturing overhead cost
6. the wages of the company's accountant: administrative cost
7 depreciation on equipment used to test assembled computers before release to customers: manufacturing overhead cost
8. rent on the facility in the industrial park: manufacturing overhead cost, marketing and selling cost, administrative cost

Answer 1

The PC Works

Most likely classification, either as direct labor, direct materials, manufacturing overhead, selling, or administrative costs:

1. Direct materials costs

2. Selling cost

3. Direct labor cost

4. Selling cost

5. Manufacturing overhead cost

6. Administrative cost

7. Manufacturing overhead cost

8. Manufacturing overhead cost, marketing and selling cost, administrative cost

Step-by-step explanation:

a) Direct materials cost is the cost for the acquisition of materials that will form part of the finished product. The materials are indirect when they would not form part of the finished product.

b) Direct labor cost is the cost of employees who produce the products.

c) Manufacturing overhead costs are expenses directly incurred in production. They can be traced to a unit of production, unlike indirect overhead costs.

d) Selling costs are expenses spent to bring the goods to the customer, including the cost of creating awareness which may lead to a product purchase.

e) Administration costs are expenses incurred to keep the business running smoothly.