Question

You are hired to work as a financial accountant at a factory called ‘Casual Furniture Company’ that manufactures outdoor furniture. The head of Finance Department has asked you to classify the following list of costs on the basis of the options given below.

List of costs:

1.	Timber needed for manufacturing furniture.
2.	Wages of the factory supervisors.
3.	Total salaries and wages of personnel who work in the Assembly department.
4.	Depreciation of factory office equipment.
5.	Payments of 10% sales commissions for products sold during the month.
6.	Factory cleaner’s wages that are paid fortnightly.
7.	Advertising expenses incurred during the month.
8.	Depreciation on equipment owned by the sales office.
9.	Monthly cost of utilities and insurance for the factory.
10.	Paint that is applied on the finished furniture.

(i) The item is classified as: Manufacturing or Non-manufacturing

(ii) Type of cost is: R&D cost, Design, Supply, Direct material, Direct labour, Manufacturing overhead, Marketing, Distribution, or Customer service

(iii) The behavior of cost is: Variable cost, Mixed cost or Fixed cost

Cost item	(i)	(ii)	(iii)
Example: Glue	Manufacturing	MOH cost (IM)	Variable
1. Timber
2. Wages -Factory supervisor
3. Salaries & Wages-Assembly personnel
4. Depreciation – factory office Equip't.
5. Sales commissions
6. Factory cleaner’s wages paid fortnightly
7. Advertising expenses
8. Depreciation – sales office equipment
9. Utilities & insurance – factory
10. Paint applied on finished furniture

Answer 1

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	List of costs:	Classification	Type	Behavior
1	Timber needed for manufacturing furniture.	Manufacturing	Direct material	Variable
2	Wages of the factory supervisors.	Manufacturing	Direct labor	Variable
3	Total salaries and wages of personnel who work in the Assembly department.	Manufacturing	Direct labor	Fixed
4	Depreciation of factory office equipment.	Manufacturing	Manufacturing overhead	Fixed
5	Payments of 10% sales commissions for products sold during the month.	Non Manufacturing	Marketing	Variable
6	Factory cleaner’s wages that are paid fortnightly.	Manufacturing	Manufacturing overhead	Variable
7	Advertising expenses incurred during the month.	Non Manufacturing	Marketing	Fixed
8	Depreciation on equipment owned by the sales office.	Non Manufacturing	Marketing	Fixed
9	Monthly cost of utilities and insurance for the factory.	Manufacturing	Manufacturing overhead	Mixed
10	Paint that is applied on the finished furniture.	Manufacturing	Manufacturing overhead	Variable