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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Classifying costs as materials, labor, or factory overhead

Indicate whether each of the following costs of an automobile manufacturer would be classified as direct materials cost, direct labor cost, or factory' overhead cost:

  1. a. Wheels
  2. b. Glass used in the vehicle's windshield
  3. c. Wages of assembly line worker
  4. d. V8 automobile engine
  5. e. Depreciation of robotic assembly line equipment
  6. f. Steering wheel
  7. g. Painting safety masks for employees working in the paint room
  8. h. Salary of test driver

To determine

Direct Material cost:

Direct material cost is the cost of the material which is directly involved in the production. It constitutes the major portion of the total cost of the finished product. For example: The cost of plastic is the direct material for manufacturing a bottle.

Direct Labor Cost:

Direct labor cost is the cost of the labor paid to the employees who are directly involved in converting the raw materials to the finished products. It constitutes the major portion of the total cost of the finished product. For example: Wages paid to the mechanic for repairing an automobile.

Factory Overhead Cost:

Factory overhead cost is the cost other than the direct material cost, and the direct labor cost which is not directly involved in the production of converting the raw materials to the finished products. If the direct material cost or direct labor cost does not constitute the major portion of the total cost of the finished product, then it may be classified as the factory overhead cost. For example: Cost of repairing, and maintaining factory equipment.

To indicate: Whether each of the given cost of an automobile manufacturer would be classified under direct material cost, direct labor cost, or factory overhead cost.

Explanation

The given costs of an automobile manufacturer are classified as follows:

Sl.

No

Particulars Types of costs
a. Wheels Direct materials cost
b. Glass used in the vehicle’s windshield Direct materials cost
c. Wages of assembly line worker Direct labor cost
d. VS Automobile engine Direct materials cost
e. Depreciation  of robotic assembly line equipment Factory overhead cost
f. Steering Wheel Direct materials cost
g. Painting safety  masks for employees working in the paint room Factory overhead cost
h...

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