Companies often do work on a cost-reimbursement basis. That is, Company B reimburses Company A for the cost of doing work for Company B. Suppose your company has a contract that calls for reimbursement of direct materials and direct labor, but not overhead. Following are costs that various organizations incur; they fall into three categories: direct materials (DM), direct labor (DL), or overhead (OH). Glue used to attach labels to bottles containing a patented medicine. Compressed air used in operating paint sprayers for Student Painters, a company that paints houses and apartments. Insurance on a factory building and equipment. A production department supervisor"s salary. Rent on factory machinery. Iron ore in a steel mill. Oil, gasoline, and grease for forklift trucks in a manufacturing company"s warehouse. Services of painters in building construction. Cutting oils used in machining operations. Cost of paper towels in a factory employees" washroom. Payroll taxes and fringe benefits related to direct labor. The plant electricians" salaries. Crude oil to an oil refinery. Copy editor"s salary in a book publishing company.

a. Classify each of these items as direct materials, direct labor, or overhead.

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. In which answers are you completely confident?