END OF CHAPTER QUESTION(Managerial Accounting and Cost Concepts)

1. Identify and give at least five (5) examples of each of the three basic manufacturing cost categories. (Direct materials, Direct labor & Factory overhead)

2. Identify and give at least five (5) examples of each of the two basic non-manufacturing cost categories. (Selling expense & Administrative expense)

3. Many new cost terms have been introduced in this chapter. It will take you some time to learn what each term means and how to properly classify costs in an organization.

Consider the following example:

ABZ Corporation manufactures furniture, including tables. Selected costs are given below:

• The tables are made of wood that costs P1,000 per table.
• The tables are assembled by workers, at a wage cost of P400 per table.
• Workers making the tables are supervised by a factory supervisor who is paid P350,000 per year.
• Electrical costs are P2 per machine hour. Four machine hours are required to produce a table.
• The depreciation on the machines used to make the tables totals P100,000 per year. The machines have no resale value and do not wear out through use.
• The salary of the president of the company is P1,000,000 per year.
• The company spends P250,000 per year to advertise its products.
• Salespersons are paid a commission of P2,000 for each table sold.
• Instead of producing the tables, the company could rent its factory space for P650,000 per year. Required: Classify these costs according to the various cost terms used in the chapter. Carefully study the classification of each cost.