I.

THEORY QUESTIONS: This will help you indicate the classification of

cost.

Instructions: Answer the following questions and provide the necessary

requirements.

DIRECT OR INDIRECT COST (6 points)

Classify the following expenses as direct or indirect:

a) factory rental
b) insurance of machinery used for one product only
c) warehouse rental
d) insurance of office buildings
e) costs of a canteen for employees
f) Petrol for delivery vehicles.

II. PROBLEM SOLVING: This will help you develop your analytical
capabilities and judgment.

Instructions: Read each problem carefully and provide the necessary

requirements.

Problem 1. Classify each of the following costs of Bug Company in two ways:
(a) as variable (V) fixed costs (F); (b) as inventoriable costs (I) or period costs
(P): (20 points)

Example: Direct labor V I

1. Salary of company controller
2. Fire insurance on direct
materials
3. Property taxes on finished
goods held for sale
4. Direct materials used
5. Factory rent
6. Sales Commissions
7. Overtime premium of machine
operators
8. Straight-line depreciation of
Factory equipment
9. Straight-line depreciation of
trucks used for delivery
of sales to customers
10. Salary of factory supervisor
Problem 2 (20 points)
The financial statements of BBM Company included these items:
Marketing costs P160,000
Direct labor cost 245,000
Administrative costs 145,000
Direct materials used 285,000
Fixed factory overhead costs 175,000
Variable factory overhead costs 155,000

Compute and show the solutions:

Prime cost
Conversion cost
Total inventoriable/product cost
Total period cost

Problem 3 (10 points)

SahBong Corporation estimated its unit costs of producing and selling
12,000 units per month as follows:
Direct materials used P32.00
Direct labor 20.00
Variable manufacturing overhead 15.00
Fixed manufacturing overhead 6.00
Variable marketing costs 3.00
Fixed marketing costs 4.00
Estimated unit cost P80.00

Compute and show the solutions:

Total variable costs per month
Total fixed costs per month
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