Manufacturing
What are the three types of manufacturing costs?
Direct materials, direct labor, and manufacturing overhead
A company pays $3,000 for advertising its new product. Is this a manufacturing or non-manufacturing cost?
Non-manufacturing cost
A bakery uses flour that can be easily traced to a specific cake. Is the flour a direct or indirect cost?
Direct cost
A company produces more units, causing the amount of materials used to increase. Is this a variable or fixed cost?
Variable cost
A company is choosing between two suppliers. Supplier A costs $5,000 while Supplier B costs $6,000. What type of cost is the $1,000 difference?
Differential cost
A company pays workers who physically assemble its tables. What type of manufacturing cost is their labor?
Direct labor
A company’s accountant prepares the company’s financial statements. Is this a manufacturing or non-manufacturing cost?
Non-manufacturing cost
A factory uses electricity to produce hundreds of different products. Is the electricity a direct or indirect cost?
Indirect cost
A factory pays $10,000 in monthly rent to use their facility. Is this a variable or fixed cost?
Fixed cost
You can either work a shift and earn $80 or go to a concert. You choose the concert. What is the $80 you give up?
Opportunity cost
A factory pays $5,000 for electricity used by its production equipment. What type of manufacturing cost is this?
Manufacturing overhead
A company pays its sales representatives a salary for selling its products. Is this a selling cost or an administrative cost?
Selling cost
A worker spends all day assembling one specific product. Is the worker’s labor a direct or indirect cost?
Direct cost
A company produces 1,000 units and has $5,000 in total fixed costs. What is the fixed cost per unit?
$5 per unit
A company purchased a machine for $40,000 two years ago. The money cannot be recovered. What type of cost is this?
Sunk cost
A company spends $12,000 on direct materials, $8,000 on direct labor, and $5,000 on manufacturing overhead. What is the company’s total manufacturing cost?
$25,000
A company pays $6,000 for advertising, $4,000 for sales staff, and $10,000 for factory maintenance. How much are its non-manufacturing costs?
$10,000
A worker makes parts used in only one product, but the parts are too inexpensive to track individually. Direct or indirect?
Indirect
A company produces 1,000 units with $10,000 in fixed costs. Production increases to 2,000 units. What happens to the total fixed cost and fixed cost per unit?
Total fixed cost stays at $10,000, fixed cost per unit decreases from $10 to $5.
A company already spent $20,000 on research. It can either use the product design or abandon it and earn $8,000 from another project. Which cost is relevant to the decision: the $20,000 or the $8,000?
The $8,000 is relevant because it is an opportunity cost. The $20,000 is a sunk cost.
A company has $15,000 in direct materials, $10,000 in direct labor, and $7,000 in manufacturing overhead. What are the company’s prime cost AND conversion cost?
Prime cost = $25,000
Conversion cost = $17,000
A company spends $20,000 on factory production and $8,000 on administrative expenses. How much is included in total manufacturing costs, and why?
$20,000, because administrative expenses are non-manufacturing costs.
A company manufactures 10 different products in the same factory. The company knows exactly how much steel is used for each product, but the factory’s maintenance employee spends time maintaining equipment used to make all 10 products. How should the steel and maintenance employee’s wages be classified?
Steel - Direct
Maintenance employee's wages - Indirect Cost
A company’s mixed cost is represented by Y = $3,000 + $5X. If the company produces 1,000 units, what is the total cost?
$8,000
A machine originally cost $50,000, and that money is nonrefundable. Replacing it would cost $30,000, while keeping it would result in $10,000 of additional costs. Which costs should management consider when making the decision? And classify each.
The $30,000 and $10,000 should be considered (differential cost). The $50,000 is a sunk cost and should be ignored.