Understanding the classification and assignment of costs is important. Consider a company that manufactures computer chips. It incurs the following costs in manufacturing chips and in operating the company.

1 . Plastic board used to mount the chip, $3.50 each.

2 . Assembly worker pay of $15 per hour to attach chips to plastic board.

3 . Salary for factory maintenance workers who maintain factory equipment.

4 . Factory supervisor pay of $55,000 per year to supervise employees.

5 . Real estate taxes paid on the factory, $14,500.

6 . Real estate taxes paid on the company office, $6,000.

7 . Depreciation costs on machinery used by workers, $30,000.

8 . Salary paid to the chief financial officer, $95,000.

9 . Advertising costs of $7,800 paid to promote products.

10 . Salespersons’ commissions of $0.50 for each assembled chip sold.
11 . Management has the option to rent the manufacturing plant to six local hospitals to store medical records instead of producing and assembling chips.
Classify each cost in the following table according to the categories listed in the table header. A cost can be classified under more than one category. For example, the plastic board used to mount chips is classified as a direct material product cost and as a direct unit cost.

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Cost 1. Plastic board used to mount the chip, $3.50 each Period Costs Selling and Administrative Product Costs Unit Cost Sunk Opportunity Classification Cost Cost Direct Material (Prime Direct Labor (Prime and Factory Overhead (Conversion Cost) Conversion) Cost) Direct Indirect