Subject: Strategic Management Accounting

Cost Concepts & Cost Allocation

5) A company manufactures and retails clothing. You are required to group the costs which are listed below and numbered (1)(20) into the following classifications (each cost is intended to belong to only one classification):

(i) direct materials

(ii) direct labour

(iii) direct expenses

(iv) indirect production overhead

(v) research and development costs

(vi) selling and distribution costs

(vii) administration costs

(viii) finance costs

(1) Lubricant for sewing machines

(2) Floppy disks for general office computer

(3) Maintenance contract for general office photocopying machine

(4) Telephone rental plus metered calls

(5) Interest on bank overdraft

(6) Performing Rights Society charge for music broadcast throughout the factory

(7) Market research undertaken prior to a new product launch

(8) Wages of security guards for factory

(9) Carriage on purchase of basic raw material

(10) Royalty payable on number of units of product XY produced

(11) Road fund licences for delivery vehicles

(12) Parcels sent to customers

(13) Cost of advertising products on television

(14) Audit fees

(15) Chief accountants salary

(16) Wages of operatives in the cutting department

(17) Cost of painting advertising slogans on delivery vans

(18) Wages of storekeepers in materials store

(19) Wages of forklift truck drivers who handle raw materials

(20) Developing a new product in the laboratory (CIMA Cost Accounting 1)

6) Indicate whether each of the following costs incurred in a manufacturing operation are fixed or variable (F or V) and whether they are period costs or product costs under absorption costing. Each of the following question should have 2 answers: V or F (to indicate Variable or Fixed) ; and PE or PR (to indicate Period Costs or Products Costs):

a. Transportation-in costs on materials purchased.

b. Assembly-line workers wages

c. Monthly Property taxes on office buildings for administrative staff

d. Salaries of the companys top executives

e. Overtime pay for assembly workers

f. Sales commissions

g. Office rent for sales personnel

h. Salaries for sales supervisors

i. Office rental for cost-management staff

j. Administrative office heat and air conditioning