This list contains costs that various organizations incur; they fall into three categories: direct materials (DM), direct labor (DL), or overhead (OH).[7]
A. Classify each of these items as direct materials, direct labor, or overhead.
i. Glue used to attach labels to bottles containing a patented medicine.
ii. Compressed air used in operating paint sprayers for Student Painters, a company that paints houses and apartments.
iii. Insurance on a factory building and equipment.
iv. A production department supervisor’s salary.
v. Rent on factory machinery.
vi. Iron ore in a steel mill.
vii. Oil, gasoline, and grease for forklift trucks in a manufacturing company’s warehouse.
viii. Services of painters in building construction.
ix. Cutting oils used in machining operations.
x. Cost of paper towels in a factory employees’ washroom.
xi. Payroll taxes and fringe benefits related to direct labor.
xii. The plant electricians’ salaries.
xiii. Crude oil to an oil refinery.
xiv. Copy editor’s salary in a book publishing company.
B. Assume your classifications could be challenged in a court case. Indicate to your attorneys which of your answers for part a might be successfully disputed by the opposing attorneys and why. In which answers are you completely confident?