Chapter 2, Problem 56P

Cost Identification

Following is a list of cost terms described in the chapter as well as a list of brief descriptive settings for each item.

Cost terms:

1. a. Opportunity cost
2. b. Period cost
3. c. Product cost
4. d. Direct labor cost
5. e. Selling cost
6. f. Conversion cost
7. g. Prime cost
8. h. Direct materials cost
9. i. Manufacturing overhead cost
10. j. Administrative cost

Settings:

1. 1. Marcus Armstrong, manager of Timmins Optical, estimated that the cost of plastic, wages of the technician producing the lenses, and overhead totaled $30 per pair of single-vision lenses.
2. 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 4 years.
3. 3. Randy Harris is the finished goods warehouse manager for a medium-sized manufacturing firm. He is paid a salary of $90,000 per year. As he studied the financial statements prepared by the local certified public accounting firm, he wondered how his salary was treated.
4. 4. Jamie Young is in charge of the legal department at company headquarters. Her salary is $95,000 per year. She reports to the chief executive officer.
5. 5. All factory costs that are not classified as direct materials or direct labor.
6. 6. The new product required machining, assembly, and painting. The design engineer asked the accounting department to estimate the labor cost of each of the three operations. The engineer supplied the estimated labor hours for each operation.
7. 7. After obtaining the estimate of direct labor cost, the design engineer estimated the cost of the materials that would be used for the new product.
8. 8. The design engineer totaled the costs of materials and direct labor for the new product.
9. 9. The design engineer also estimated the cost of converting the raw materials into their final form.
10. 10. The auditor for a soft drink bottling plant pointed out that the depreciation on the delivery trucks had been incorrectly assigned to product cost (through overhead). Accordingly, the depreciation charge was reallocated on the income statement.

Required:

Match the cost terms with the settings. More than one cost classification may be associated with each setting; however, select the setting that seems to fit the item best. When you are done, each cost term will be used just once.