Suppose that you have been given a summer job as an intern at ABC Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help it finance its growth. The bank requires financial statements before approving such a loan. You have been asked to help prepare the financial statements and were given the following list of costs:

1. Rent on equipment used in the factory.

2. Soap and paper towels used by factory workers at the end of a shift.

3. Factory supervisors salaries.

4. Heat, water, and power consumed in the factory.

5. Advertising costs.

6. Workers compensation insurance for factory employees.

7. The wages of the receptionist in the administrative offices.

Required: Classify the above costs for the purpose of preparing the financial statements for the bank.

Cost Item	Direct Material	Direct Labor	Manufacturing Overhead	Marketing or Selling Cost	Administrative Cost
1
2
3
4
5
6
7
8

2-The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that are incurred at the company.

Required: For each cost, indicate whether it would most likely be classified as direct labor, direct materials, manufacturing overhead, selling, or an administrative cost.

1. The cost of a hard drive installed in a computer.

2. The cost of advertising in the Puget Sound Computer User newspaper.

3. The wages of employees who assemble computers from components.

4. Sales commissions paid to the companys salespeople.

5. The wages of the assembly shops supervisor.

6. The wages of the companys accountant.

Required: Classify these costs according to the various cost terms used in the chapter. Carefully study the classification of each cost.

Cost Item	Direct Material	Direct Labor	Manufacturing Overhead	Marketing or Selling Cost	Administrative Cost
1
2
3
4
5
6
7