Chapter 2, Problem 45P

Cape Cod Shirt Shop manufactures T-shirts and decorates them with custom designs for retail sale on the premises. Several costs incurred by the company 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.

Cost Classifications

1. a. Variable
2. b. Fixed
3. c. Period
4. d. Product
5. e. Administrative
6. f. Selling
7. g. Manufacturing
8. h. Research and development
9. i. Direct material
10. j. Direct labor
11. k. Manufacturing overhead

Cost Items

1. 1. Cost of fabric used in T-shirts.
2. 2. Wages of shirtmakers.
3. 3. Cost of new sign in front of retail T-shirt shop.
4. 4. Wages of the employee who repairs the firm’s sewing machines.
5. 5. Cost of electricity used in the sewing department.
6. 6. Wages of T-shirt designers and painters.
7. 7. Wages of sales personnel.
8. 8. Depreciation on sewing machines.
9. 9. Rent on the building. Part of the building’s first floor is used to make and paint T-shirts. Part of it is used for the retail sales shop. The second floor is used for administrative offices and storage of raw material and finished goods.
10. 10. Cost of daily advertisements in local media.
11. 11. Wages of designers who experiment with new fabrics, paints, and T-shirt designs.
12. 12. Cost of hiring a pilot to fly along the beach pulling a banner advertising the shop.
13. 13. Salary of the owner’s secretary.
14. 14. Cost of repairing the gas furnace.
15. 15. Cost of insurance for the production employees.