Discus Cost Terms Concepts and Classifications

Discus Cost Terms Concepts and Classifications
2–1 Would costs related to the building used only by administrative personnel, such as heat
and lights, property taxes, and insurance, be considered part of manufacturing overhead? Why or why not?
2–2 Distinguish between the following: (a) direct materials, (b) indirect materials, (c) direct
labour, (d) indirect labour, and (e) manufacturing overhead.
2–3 Are product costs always expensed in the period in which they are incurred? Explain.
2–4 What are marketing or selling costs? How are they treated on the income statement?
2–5 Describe the schedule of cost of goods manufactured. How does it tie into the income
statement?
2–6 What are prime costs and conversion costs?
2–7 What is the difference between total manufacturing costs incurred and the cost of
goods manufactured?
2–8 Is it possible for costs such as salaries or depreciation to end up as assets on the balance
sheet? Explain.
2–9 What is a mixed cost?
2–10 As the level of activity increases, on a per unit basis, explain what happens to variable
costs and fixed costs.
2–11 What is the relevant range, and why is it important to understand this when predicting
costs?
2–12 Why is manufacturing overhead considered an indirect cost of a unit of product?
Discus Cost Terms Concepts and Classifications
2–13 In deciding whether to replace an existing machine with a newer, more cost effective
machine, the original cost of the existing machine should be compared to the cost of
the new machine. Do you agree? Explain.
2–14 Only variable costs can be differential costs. Do you agree? Explain.
2–15 Rick Johnstone is employed by Westin Company. Last week he worked 46 hours assembling one of the company’s products. Westin’s employees work a standard 40-hour week,
and Johnstone is paid $18 per hour. Employees are paid time and a half for any hours
worked in excess of the standard 40 hours. Assuming the overtime is the result of an
overall spike in demand for all products, allocate Johnstone’s earnings for the week
between direct labour cost and manufacturing overhead cost.
2–16 Pat Campbell operates a moulding press at Barrie Fabrication Company. Last week Pat
worked 35 hours and was idle 5 hours due to scheduled maintenance on the equipment.
Her basic wage rate is $26 per hour. Allocate Pat’s wages for the week between direct
labour cost and manufacturing overhead cost.