1. Understand cost classifications used for assigning costs to cost objects: direct costs and indirect costs



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1.Understand cost classifications used for assigning costs to cost objects: direct costs and indirect costs:

XIUMIN manufactures cars. For each item listed. Identify whether it’s a direct or indirect cost:




Direct/Indirect (D/I)

Quality inspection costs

I

Sales Commissions

I

Depreciation on delivery trucks

I

Product design staff salaries

I

advertising

I

Property taxes on the corporate headquarters building

I

Gas and electricity for the factory

I

Cost of steel plates used in making an automobile body

D

Wages of assembly workers

D

Cost of tires

D




2.Identify and give examples of each of the three basic manufacturing cost categories:

The following costs are incurred by an electrical appliance manufacturer. Classify these costs as direct materials, direct labor, manufacturing overhead, selling, or administrative.



  1. President’s salary: administrative cost.

  2. Cost of electrical wire used in making appliances: direct material

  3. Cost of janitorial supplies (the janitors work in the factory): manufacturing overhead.

  4. Wages of assembly-line workers: direct labor.

  5. Cost of promotional displays: selling cost

  6. Cost accountant’s salary (the accountant works in the factory): direct labor

  7. Cost of cleaner used to clean appliances when they are completed: manufacturing overhead.

  8. Cost of aluminum used for toasters: direct materials

  9. Cost of market research survey: manufacturing overhead


4.Understand cost classifications used to predict cost behavior: variable costs, fixed costs, and mixed costs:
The managers at the Sun&Sea, a small hotel on the coast of Taghazout know what their costs were for June, but now they want to predict their costs for July. They have gathered the following information from the month of June.

Cost Incurred

Fixed or Variable

June Cost

Insurance

fixed

700

Loan Payment

fixed

2,500

Front Desk staff

variable

3,800

Cleaning staff

variable

2,500

Laundry Service

variable

1,200

In June, they had an occupancy of 75 nights. For the Sun&Sea, occupancy is the cost driver. Since they know what is driving their costs, they can determine their per-unit variable costs in order to forecast future costs:



Front Desk Staff / 75 = 3,800 / 75 = $50.67variable front desk staff costs per night

Cleaning Staff / 75 nights =$2,500 / 75=$33.33variable cleaning staff costs per night

Laundry Service / 75 nights = $1,200 / 75= $16.00variable laundry service costs per night

Now, the Sun&Sea can apply the cost equation in order to forecast total costs for any number of nights, within the relevant range.



  1. Determine total fixed costs: $700 + $2,500 = $3,200

  2. Determine variable costs per night of occupancy: $50.67 + $33.33 + $16.00 = $100

  3. Complete the cost equation: Y = $3,200 + $100x

Using this equation, the Sun&Sea can now predict its total costs (Y) for the month of July, when they anticipate an occupancy of 93 nights.

𝑌=$3,200+($100×93)

𝑌=$3,200+$9,300

𝑌=$12,500
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