Question

The costs below all relate to Sounds Good, a company based in Alberta that manufactures high-end audio equipment such as speakers, receivers, CD players, turntables, and home theatre systems. The company owns all of the manufacturing facilities (building and equipment) but rents the space used by the non-manufacturing employees (accounting, marketing, sales, human resources).

Required: For each cost, indicate whether it would most likely be classified as a direct labour, direct material, manufacturing overhead, marketing and selling, or administrative cost.(Select all that apply.)

1. Depreciation, taxes, and insurance on the manufacturing facilities.

	Direct labour cost Direct material cost Manufacturing overhead cost Marketing and selling cost Administrative cost

2. Rent on the office space used by the non-manufacturing staff.

	Direct labour cost Direct material cost Manufacturing overhead cost Marketing and selling cost Administrative cost

3. Salaries paid to the employees who produce the audio equipment.

	Direct labour cost Direct material cost Manufacturing overhead cost Marketing and selling cost Administrative cost

4. Cost of the glue used to fasten the company’s logo to the grill used on all of its speakers.

	Direct labour cost Direct material cost Manufacturing overhead cost Marketing and selling cost Administrative cost

5. The cost of online advertising.

	Direct labour cost Direct material cost Manufacturing overhead cost Marketing and selling cost Administrative cost

6. Salaries paid to the accounting employees.

	Direct labour cost Direct material cost Manufacturing overhead cost Marketing and selling cost Administrative cost

7. Salary paid to the production manager who supervises the manufacturing activities for all products.

	Direct labour cost Direct material cost Manufacturing overhead cost Marketing and selling cost Administrative cost

8. Cost of the plastic used for turntable dust covers.

	Direct labour cost Direct material cost Manufacturing overhead cost Marketing and selling cost Administrative cost

9. Bonuses paid to sales staff for meeting their monthly sales goals.

	Direct labour cost Direct material cost Manufacturing overhead cost Marketing and selling cost Administrative cost

10. Salary paid to the manager of the human resources department.

	Direct labour cost Direct material cost Manufacturing overhead cost Marketing and selling cost Administrative cost

Answer 1

1. Manufacturing overhead

Depreciation, taxes and overhead facilitate production; hence they are indirect costs and part of manufacturing overheads

2. Administrative cost

Rent on office space is part of Administrative cost

3. Direct labor cost

Salary of employees who produce the audio equipment is direct labor cost. They are directly engaged in production and hence it is part of direct cost.

4. Manufacturing overhead cost

Cost of glue is indirect material cost and it is part of manufacturing overhead cost

5. Marketing and selling cost

Advertising costs are marketing and selling cost since they are incurred in promoting the products

6. Administrative cost

Accounting employees are part of admin department. Hence they are administrative cost

7. Manufacturing overhead cost

Production manager facilitate the production and they are not part of direct labor. Hence it is manufacturing overhead cost

8. Direct material cost

Cost of plastic is directly used in manufacturing of the product. Hence it is direct material cost

9. Marketing and selling costs

Bonus paid to sales staff is part of marketing and selling costs

10. Administrative cost

HR department is part of admin and hence cost incurred is administrative cost