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Exercise 1
Indicate which of the following would be classified as
CH 1 DL, DM, MOH, Selling, or an Administrative cost:
1. The cost of a hard drive installed in a computer.
Introduction to Costs 2. The cost of advertising in the Puget Sound Computer User
newspaper.
& 3. The wages of employees who assemble computers from
components.
Cost Behavior 4. Sales commission paid to the company’s sales people.
5. The wages of assembly shop’s supervisor.
6. The wages of company’s accountant.
7. Depreciation on equipment used to test assembled computers
before release to customers.

Exercise 2 Exercise 3
Product Cost. Period Cost
1) Classifying a cost as either direct or indirect depends upon:
1. Depreciation on salespersons’ cars
A) the behavior of the cost in response to volume changes.
2. Rent on equipment used in the factory . B) whether the cost is expensed in the period in which it is incurred.
3. Lubricants used for machine maintenance . C) whether the cost can be easily identified with the cost object
5. Soap and paper towels used by factory workers at the end of a shift. D) whether an expenditure is avoidable or not in the future.
6. Factory supervisors’ salaries.
2) All of the following are true EXCEPT that indirect costs:
7. Heat, water, and power consumed in the factory.
A) may be included in prime costs
9. Advertising costs B) are not easily traced to products or services.
11. Depreciation on chairs and tables in the factory lunch room. C) vary with the selection of the cost object.
12. The wages of the receptionist in the administrative offices
D) may be included in manufacturing overhead .

13. Cost of leasing the corporate jet used by the company's executives
3) Which statement is true?
14. The cost of renting rooms at a Florida resort for the annual sales conference
A) A direct cost of one cost object cannot be an indirect cost of another cost object
B) All variable costs are direct costs
C) A direct cost of one cost object can be an indirect cost of another cost object.
D) All fixed costs are direct costs

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4) Stony Electronics Corporation manufactures a portable radio designed for mounting on the wall Exercise
of the bathroom. The following list represents some of the different types of costs incurred in the
manufacture of these radios:
1. The plant manager's salary. Listed below a number of costs that might be found in a
2. The cost of heating the plant. merchandising, or manufacturing company:
3. The cost of heating executive offices.
4. The cost of printed circuit boards used in the radios.
1) Property taxes, factory building
5. Salaries and commissions of company salespersons. 2) Sales commissions.
6. Depreciation on office equipment used in the executive offices. 3) Supervisor’ salary
7. Depreciation on production equipment used in the plant.
8. Wages of janitorial personnel who clean the plant. 4) Depreciation, straight-line method
9. The cost of insurance on the plant building. 5) Salary of workers in the assembling department.
10. The cost of electricity to light the plant.
11. The cost of electricity to power plant equipment.
6) “Chips” used in producing calculators.
12. The cost of maintaining and repairing equipment in the plant. 7) Insurance, factory
13. The cost of printing promotional materials for trade shows. 8) Factory labor.
14. The cost of solder used in assembling the radios.
15. The cost of telephone service for the executive offices.
9) Direct materials used.
Required: 10) utilities, factory.
Classify each of the items above as product (inventoriable) cost or period (noninventoriable) cost for
11) Lease cost, factory equipment
the purpose of preparing external financial statements.
12) Administrative office salaries

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Required:
For each cost item, indicate whether it would classify as variable.
or fixed in behaviour. Prepare your answer in a sheet with
column headings as shown below:

Cost Item Variable. Fixed

Exercise
COST Behavior Selling or Administrative Product Cost
Cost
Cost Item Variable Fixed Direct Indirect

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