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Following is a list of cost terms described in the section as well as a list of brief descriptive
settings for each item. Fill in the blank with an appropriate cost terms.
Cost terms:
a. Opportunity cost
b. Product cost
c. Direct labour cost
d. Prime cost
e. Direct material cost
f. Manufacturing overhead cost
g. Administrative cost Settings:
1. Marcus, manager of Optical Sdn Bhd estimated that the cost of plastics, wages of the
technician producing the lenses, and overhead totaled RM30 per pair of single vision
lenses.
………………………………….
2. Linda was having a hard time deciding whether to return to school. She was concerned
about the salary she would have to give up for the next four years.
…………………………………
3. The design engineer totaled the cost of materials and direct labour for the new product.
……………………………………
4. The new product required machining, assembly and painting. The design engineer
asked the accounting department to estimate the labour cost of each of the three
operations. The engineer supplied the estimated labour hours for each operation.
…………………………………..
5. Yasmin is in charge of the legal department at company headquarters. Her salary is
RM95,000 per year. She reports to the chief executive officer.
…………………………………...
6. All factory costs that are not classified as direct materials or direct labour.
……………………….................
7. After obtaining the estimate of direct labour cost, the design engineer estimated the
cost of the materials that would be used for the new product.
………………………………….....
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Question 2
Question 3
Question 4
The following cost incurred at one of the snack shop in Dungun. You are required to classify
the following cost according to their function (Production cost, Administrative cost, Selling
cost or Finance cost)
No Cost Function
2
3 Depreciation expenses of kitchen equipment
5 Manager’s salary
Question 5
Identify the following cost as controllable or non-controllable by the head of the production
department.
Question 6
Question 7
Determine the following examples either fixed cost, variable cost or semi-fixed and variable
cost.
1 Rental of building
2 Electricity expenses
3
5 Flour in Bakery Company
8. What is sunk cost and give one (1) example of this cost
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9
Tasty Bakery is involved in selling cakes. Identify each item according cost classification.
No. Cost items Fixed Variable Semi-variable
Cost Cost cost
1 Flour
2 Electricity expenses
3 Rental of shop
4 Eggs
5 Baking powder
6 Cashier’s salary
7 Telephone expenses
8 Insurance
9 Depreciation of machine
10 Salary of baker
Question 10
Classify the following costs into the following cost classifications. (Each cost item should
belong to one cost classification)
Cost classification
Flour Bread
Electricity Saloon
Sugar Cakes
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Question
Ink Printing
Button Tailor
Question 11
Track Corporation incurred the following cost while manufacturing its bicycles.
A. Bicycle components
B. Depreciation on plant
C. Property taxes on store
D. Labour costs of assembly-line workers
E. Factory supplies used
F. Advertising expenses
G. Delivery expenses
H. Sales Commission
I. Salaries paid to sales clerks
Required:
Identify each of the above costs as direct materials, direct labour, manufacturing overheads or
period cost.
Question 12
Question 13
Classify the following cost either production costs, selling and distribution costs, administration
costs or research and development costs.
A. Costs of oils used to lubricate production machinery
B. Motor vehicle licenses for lorries
C. Depreciation of factory plant and equipment
D. Cost of chemicals used in the laboratory
E. Commission paid to sales representative
F. Salary of the secretary to the finance director
G. Trade discount given to the customers
H. Holiday pay of machine operators
I. Salary of security guard in raw material warehouse
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J. Fees for advertising agency
K. Rent of finished goods warehouse
L. Salary of scientist in laboratory
M. Insurance of the company’s premises
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Classify each cost either direct material cost, direct labour cost or direct expenses
A. Wood used to make a chair
B. Salary to the bakers at Bakery Shop
C. Fabrics for the skirt
D. Royalty paid to the GLC Company
E. Metal used for the legs of a chair
Question 15
Several cost incurred by Myrtle Beach Golf Equipment, Inc. are listed below. For each cost,
indicate which of the following classifications best describe the cost. More than one
classification may apply to the same cost item. For example, a cost may be both variable cost
and product cost.
Cost classifications
a. Variable
b. Fixed
c. Period
d. Product
e. Administrative
f. Selling
g. Manufacturing
h. Research and development
i. Direct material
j. Direct labour
k. Manufacturing overhead
Cost item
1. Metal used in golf clubs
2. Salary of the plant manager
3. Cost of natural gas used to heat factory
4. Commissions paid to sales personnel
5. Wages paid to employees who assembles golf bags
6. Salary of engineer who is working on a prototype of a new solar-powered golf cart
7. Depreciation on the word processing equipment used by the company president’s
secretary
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Question
Question 16
Meat Company produces one of the best sausage products in Kelana Jaya. The company’s
controller used the account- classification method to compile the following information.
a. Depreciation schedules revealed that monthly depreciation on buildings and equipment
is RM19,000.
b. Inspection of several invoices from meat packers indicated that meat costs the
company RM1.10 per sausage produced.
c. Wage records showed that compensation for production employees costs RM0.70 per
sausage produced.
d. Payroll records showed that supervisor salaries total RM10,000 per month
e. Utility bills revealed that the company incurs utility costs of RM4,000 per month plus
RM0.20 per sausage produced
Question 17
Gomo Bike Sdn Bhd (GBSB) produces many different models of bicycles. Assume that the
market has responded enthusiastically to a new model, the Jaguar. As a result, the company
has established a separate manufacturing facility to produce these bicycles. The company
produces 1,000 bicycles per month. Giant’s monthly manufacturing costs and other data are
as follows:
Required:
a) Prepare an answer sheet with the following column headings:
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Rent
Enter each cost item on your answer sheet, placing an “X” mark under the appropriate
headings.
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Didde Sdn Bhd (DSB) makes industrial cleaning solvents. Various chemicals, detergent, and
water are mixed together and then bottled in 10- gallon drums. DSB provided the following
information for last year:
RM
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Question
Last year, DSB completed 100,000 units. Sales revenue equaled RM1, 200,000 and DSB paid
a sales commissions of 5% of sales.
Required:
a) Calculate the direct materials used in production for last year.
b) Calculate total prime cost.
c) Calculate total conversion cost.
d) Calculate cost of goods manufactured for last year.
e) Calculate cost of goods sold for last year.
f) Calculate total selling and administration expenses.
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