Question

Following are cost terms, concepts, and classifications of a metal toy car model manufacturer:
1. Product costs
2. Period costs
3. Direct material costs
4. Direct labor costs
5. Manufacturing overhead costs
6. Fixed costs
7. Variable costs

Match the above are cost terms, concepts, and classifications to the respective costs items:

1. Metal used in manufacturing of the metal toy car models.

1, 3, 4

2, 7

1, 3, 7

2, 3, 6

2. Depreciation of factory machineries.

1, 3, 6

2, 6

1, 5, 6

1, 3, 7

3. Sales commissions earned by salesman.

1, 3, 6

2, 7

1, 5, 6

1, 3, 7

4. Factory supervisor salaries.

1, 5, 6

2, 7

2, 5, 6

1, 3, 7

5. Factory assembly line worker.

1, 5, 6

2, 7

2, 5, 6

1, 4, 7

Answer 1

1) 1,3,7

Metal is direct material for metal toy car model. Also the requirement will vary with no of units. The cost is also involved in making the prdict, so product cost.

2) 1, 5, 6

Depreciation is incurred in creating the product. Also it is fixed for the economic life of the machine . And it is the indirect cost incurred in the manufacture of the product .

3) 2,7

Sales commission is variable as it varies with the number of units sold. And since it is not directly related to the production process, it is period cost.

4) 2,5 ,6

It is not directly related to the production of the product. The salaries are fixed for a period. Since the supervisor is involved in the manufacturing process , it is manufacturing overhead.

5) 1,4, 7

The labour directly involved in the production process is a part of direct labour and are included in the product cost . Also the labour requirements vary with number of units produced.