Understanding the types of costs and their classifications is key to determine the profitability of a particular product and/or product line and its overall contribution to the company.

Identify a company and a product (not a service) the company manufactures. Do not duplicate a company/product already presented by a classmate. For that product, identify two direct costs (one direct materials and one direct labor), two indirect costs, and one period cost. For each cost, explain the classification.

See the example below.

• Wilson manufactures National Football League (NFL) game American footballs. It is a core product for the company that has been manufactured in Ada, Ohio since 1955. Each football is handmade.
• Direct materials cost: Cowhide leather this cost is an integral part of the finished product, the amount used is significant to the product and it can be traced to the finished football.
• Direct labor cost: Employees that manufacture the football this cost represents the labor cost of the employees that physically work on the football.
• Indirect cost: Glue that holds the football together. This cost is part of manufacturing overhead, because the cost is nonsignificant nor can the amount be easily traced to the finished football.
• Indirect cost: Factory security guards. NFL footballs need to be guarded throughout the manufacturing process given their importance. The security guards are a critical component of the overall cost of the product but the wages of the security guards are not conveniently traceable to a specific football but rather assigned to the entire process.
• Period cost: Commission for sales representative that works with the NFL to determine number of footballs required each season. This is a selling cost that is allocated to the month in which the footballs are sold.