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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 in a service company

A partial list of the costs for Wisconsin and Minnesota Railroad, a short hauler of freight, follows. Classify each cost as either indirect or direct. For purposes of classifying each cost, use the train as the cost object.

a. Cost to lease (rent) railroad cars

b. Cost of track and bed (ballast) replacement

c. Diesel fuel costs

d. Cost to lease (rent) train locomotives

e. Depreciation of terminal facilities

f. Maintenance costs of right-of-way, bridges, and buildings

g. Salaries of dispatching and communications personnel

h. Headquarters information technology support staff salaries

i. Safety training costs

j. Wages of train engineers

k. Wages of switch and classification yard personnel

l. Costs of accident cleanup

To determine

Direct cost:

A cost indicates the payment of cash or the obligation to pay the cash in the future period for the generation of revenue or the service performed. A direct cost is the cost which is directly involved in the process of production. For example: The cost of plastic is the direct material for manufacturing a bottle.

Indirect cost:

An indirect cost is the cost which is indirectly involved in the process of production. For example: The salary of supervisor of a manufacturing business cannot be traced even though the supervisor contributes for the production.

To classify: Each cost as either direct cost or indirect cost.

Explanation

The items classified under direct costs or indirect costs are as follows:

Sl.

No

Particulars Direct / Indirect cost
a. Cost to lease (rent) railroad cars. Direct
b. Cost of track and bed (ballast) replacement Indirect
c. Diesel fuel costs Direct
d. Cost to lease (rent) train locomotives Direct
e. Depreciation of terminal facilities Indirect
f. Maintenance costs of bridges, and buildings Indirect
g. Salaries of dispatching and communication personnel Indirect
h...

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