Many new cost terms have been introduced io this chapter. Is will take you some time w. leam w at eash fernu meitus and how to propcaly classily costs ith an organization. To assist in this learning process, consider the following example: Porter Companyy manufticture funniture, inclading tibles. Selected eosts asvociated with the manufacturv of the tables and the yeneral operation of the company are given below: 1. The tables are made of wood that costs $100 per tible. 2. The tables are assembled by workers. at a wage cost of $40 per table 3. Workers assembling the tables are supervised by a factory supervisor who is paid $25.000 per year. 4. Electical casts are \$2 per machine-hour. Four machine-hours are tequired to produce a table. 5. The depreciation cost of the machines used to make the whbles totsis $10,000 per year 6. The sutary of the president of Porter Company is $170,000 per year 7. Porter Company spends $250,000 per year to advertise its products. 8. Salespersons ane paid a commission of $30 for each table sold. 9. Instead of producing the tables. Porter Company could rent its factory space out at a rentad income of $50,000 per year. EXERCISE 2-1 Usiny Cast Terms [LO2, LOS, LO7] Following are a number of coss terns introduced in the chapter: PeriodcostVariablecostOpportunitycostProductcostFixedcostPrimecostConversioncostSunkcost Choose the cost term or terms above that most appropriately describe the costs identified in each of the following situations. A cost term can be used more than once. 1. Crestine Books, lsc, prints a small book titled The Packer Speller. The paper going into the magufacture of the thook would be cailed direct materials and classificd as at cost. In terns of cos bechavior, the proper could also be described as i. cost with tespect to the number of books prinied. 2. Inslead of compiling the wurds in the book, the author hired by the company could have camed considerable fees consulting with business organizations. The consulting fees forgone by the duthor would be called cost. 3. The papet and other materials used in the manufacture of the book, combined with the direet labor cost involved, would be called cost. 4. The salary of Crestline Books' president would be classified as a cost, and the salary will appear on the income statement as an expense in the time period in which it is incured. 5. Depreciation on the eouinment used to print the book would be classified by Crestline Books as. cost. However, depreciation on any equipment used by the commpany in selling and adminisirative activities would be classified as a cost. In terms of cost behavior, depreciation would probubly be classified as a - cost with respect to the number of books printed. 6. A cost is also known at an inventoriable cost, since such costs go into the Work in Process inventory account and then into the Finished Goods inventory account before appeuring on the inconte statement as part of cost of goods sold. 7. Taken together, the direct labor cost and manufacturing overhead cost involved in the manufacture of the book would be called cost. S. Crestlime Bookis sells the book through agents who are paid a commission on each book sold. The company would classify these commissions as a cost. In terms 9. Several hundred copies of the bouk were left over from the previous edition and are stored in a warehouse. The amount invested in these books would be called a cost. 10. Costs can often be clussified in several ways. For example, Crestline Books pays 54,000 rent each month on the building that houses its printing press. The rent would be part of manufacturing overhead. In terms of cost bchavior, it would be classified as a renit ean also be classified as a cost. The cost and as part of Many new cost terms have been introduced io this chapter. Is will take you some time w. leam w at eash fernu meitus and how to propcaly classily costs ith an organization. To assist in this learning process, consider the following example: Porter Companyy manufticture funniture, inclading tibles. Selected eosts asvociated with the manufacturv of the tables and the yeneral operation of the company are given below: 1. The tables are made of wood that costs $100 per tible. 2. The tables are assembled by workers. at a wage cost of $40 per table 3. Workers assembling the tables are supervised by a factory supervisor who is paid $25.000 per year. 4. Electical casts are \$2 per machine-hour. Four machine-hours are tequired to produce a table. 5. The depreciation cost of the machines used to make the whbles totsis $10,000 per year 6. The sutary of the president of Porter Company is $170,000 per year 7. Porter Company spends $250,000 per year to advertise its products. 8. Salespersons ane paid a commission of $30 for each table sold. 9. Instead of producing the tables. Porter Company could rent its factory space out at a rentad income of $50,000 per year. EXERCISE 2-1 Usiny Cast Terms [LO2, LOS, LO7] Following are a number of coss terns introduced in the chapter: PeriodcostVariablecostOpportunitycostProductcostFixedcostPrimecostConversioncostSunkcost Choose the cost term or terms above that most appropriately describe the costs identified in each of the following situations. A cost term can be used more than once. 1. Crestine Books, lsc, prints a small book titled The Packer Speller. The paper going into the magufacture of the thook would be cailed direct materials and classificd as at cost. In terns of cos bechavior, the proper could also be described as i. cost with tespect to the number of books prinied. 2. Inslead of compiling the wurds in the book, the author hired by the company could have camed considerable fees consulting with business organizations. The consulting fees forgone by the duthor would be called cost. 3. The papet and other materials used in the manufacture of the book, combined with the direet labor cost involved, would be called cost. 4. The salary of Crestline Books' president would be classified as a cost, and the salary will appear on the income statement as an expense in the time period in which it is incured. 5. Depreciation on the eouinment used to print the book would be classified by Crestline Books as. cost. However, depreciation on any equipment used by the commpany in selling and adminisirative activities would be classified as a cost. In terms of cost behavior, depreciation would probubly be classified as a - cost with respect to the number of books printed. 6. A cost is also known at an inventoriable cost, since such costs go into the Work in Process inventory account and then into the Finished Goods inventory account before appeuring on the inconte statement as part of cost of goods sold. 7. Taken together, the direct labor cost and manufacturing overhead cost involved in the manufacture of the book would be called cost. S. Crestlime Bookis sells the book through agents who are paid a commission on each book sold. The company would classify these commissions as a cost. In terms 9. Several hundred copies of the bouk were left over from the previous edition and are stored in a warehouse. The amount invested in these books would be called a cost. 10. Costs can often be clussified in several ways. For example, Crestline Books pays 54,000 rent each month on the building that houses its printing press. The rent would be part of manufacturing overhead. In terms of cost bchavior, it would be classified as a renit ean also be classified as a cost. The cost and as part of
