1. The cost to ship the product to the customer is a
       a. manufacturing overhead cost
       b. period costs, selling
       c. period costs, administrative
       d. product cost, selling      

B. Shipping is a period cost and (a. and d.) are product costs so they can
       not be correct. Shipping is a selling cost and not an administrative cost. (c.)
       Selling costs are costs incurred to make the sale and get the product to
       the customer. Selling costs are always period costs and are expensed on
       the income statement in the period they are incurred.

2. Which of the following is an example of a direct material cost?
       a. glue and tape, not traceable
       b. plastic part in the product, easy to track
       c. supervisors on the production line 
       d. boxes used to ship the product that are not tracked

B.   Direct materials become part of the product. The plastic is part of the finished
       product. (a. and c.) are manufacturing overhead costs. (d.) is normally a 
       selling cost.

3. Which of the following is an example of direct labor cost?
       a. the worker in the warehouse
       b. the worker on the production line
       c. the worker who inspects the product
       d. the worker who cleans the manufacturing facility

B.   Direct labor physically touches the product to make it and a worker on the
       production line does this. A warehouse worker is a period cost (a.). Both
       c. and d. are manufacturing overhead costs. 

4. Which of the following is an example of manufacturing overhead costs
       a. supervisors on the production line
       b. workers on the production line
       c. materials that are a significant part of the product
       d. advertising

A.   Workers on the production line are direct labor. (b.) Materials that are 
       a significant part of the product are direct materials (c.) Advertising
       is a period expense (d.) Supervisors do not touch the product with
       the purpose of making it and they are necessary costs to get the product
       manufactured, which is manufacturing overhead. 

5. Conversion costs are 
       a. direct materials plus direct labor
       b. direct labor plus manufacturing overhead
       c. expensed as incurred
       d. direct costs only

B.   By definition, conversion costs are “direct labor + manufacturing overhead”.
       They are product costs and not expensed as incurred (c.) Manufacturing
       overhead is an indirect cost, so it is not only direct costs only (d.)

6. Which of the following is an example of an administrative period cost?
       a. travel expense related to sales people
       b. travel expense related to executive management
       c. advertising costs for a new product
       d. rent on the manufacturing facility

B.   Travel for salespeople and advertising are period costs, but they are        
       selling costs and not administrative (a. & c.) Rent at the manufacturing
       facility is a product cost and is manufacturing overhead. Costs related to
       executive management are administrative.
     

7. Direct costs are
       a. part of making the product, easy to determine how much is required
       b. direct materials only
       c. hard to determine for one product
       d. direct labor only

A.   Direct costs are direct labor and direct materials. (b. & d.) It is easy to 
       determine how much of each is required to make the product. 
     

8. The cost of utilities and telephone would be classified as
       a. period costs
       b. manufacturing overhead
       c. product costs
       d. it depends on which part of the company the costs are related to 

D.   These costs could be related to the corporate office and administrative
       operations. In this case, they would be period and administrative costs.
       They could be related to the manufacturing plant, in which case
       they would be a product cost and part of manufacturing overhead.
       It depends on which part of the company the costs are related to.

9. Selling and administrative costs
       a. are reported on the income statement as they are incurred
       b. are part of overhead at the manufacturing plant
       c. are product costs
       d. are always higher than the cost to make the product

A.   These costs are period costs and are expensed as they are incurred. They are
       not part of product costs or manufacturing overhead which is a product 
       cost (b. & c.). They may or may not be more than it costs to make the product. (d)

10. Which of the following is an example of a direct labor cost?
       a. the worker in the warehouse
       b. the worker operating the machine that makes the product
       c. the worker who inspects the product
       d. the worker who cleans the manufacturing facility

B.   The warehouse worker is a period cost and expensed as incurred (a).        
       Inspectors and people who clean are product costs and are part of
       manufacturing overhead (c. & d.). The worker operating the machine is
       directly involved in making the product and is a direct labor cost.

11. Why are supervisors on the production line considered indirect labor?
       a. the supervisor has to touch the product to make the product
       b. the supervisor is a necessary cost of manufacturing the product
           and it is difficult to determine how much of the salary is incurred
           to make one product.
       c. supervisor salaries are expensed as incurred
       d. because they are manufacturing overhead

B.     Indirect labor is an indirect manufacturing overhead cost that must be allocated
         because it is difficult to determine the cost to make one product.  The cost
         occurs at the plant, but that is not the reason it is indirect labor (d.).  Indirect labor 
         is other labor costs incurred at the plant that does not touch the product to make the 
         product.   (a.) would be a direct labor cost.  Manufacturing overhead is a product cost
         and becomes part of the cost of inventory (c.)  

12. Below is a list of costs incurred by a manufacturing company. State whether they
are (A.) direct materials, (B.) direct labor, (C.) manufacturing overhead or
(D.) period costs.

C m/o 1. salaries for inspectors of the finished products
D adm 2. property taxes at the corporate headquarters
B dl 3. wages paid to those working on the production line
C m/o 4. supervisors salaries
C m/o 5. glue and nails used to make the product, not traceable
A dm 6. plastic that becomes part of the product
C m/o 7. manufacturing machine depreciation
C m/o 8. utilities at the manufacturing plant
C m/o 9. maintenance and repairs done on equipment at the plant
D sell 10. advertising

13. Below is a list of costs usually incurred by a manufacturing company. State
whether they are (A.) direct materials, (B.) direct labor, (C.) manufacturing overhead
or (D.) period costs.

C m/o 1. insurance paid for manufacturing facility
D adm 2. rent paid on the corporate office
D sell 3. sales commissions paid to salesman
C m/o 4. salaries for the receptionist at the manufacturing facility
D adm 5. human resources at the corporate office
B dl 6. workers assembling the product
C m/o 7. depreciation on the building used for manufacturing
D adm 8. utilities paid at the executive offices
A dm 9. the door handle that goes on the door to be sold to the customer
D adm 10. repairs to executive office computers

14. Indicate which of the following costs are product (PR) or period (PD)
for Ford Motor Corporation:
PR dm 1. windshields
PR dl 2. wages of assembly line manufacturing
PD sell 3. advertising on television
PR m/o 4. insurance on the manufacturing facility
PD adm 5. property taxes on the corporate office
PD sell 6. salesmen auto expenses
PR dm 7. tires on automobiles sold
PD whs 8. salary of the warehouse supervisor
PR m/o 9. salary of the production line supervisor
PR m/o 10. inspector of the finished automobile

Important to note:

Anything that occurs at the plant that is not direct material or direct labor is manufacturing
overhead. These are all product costs.

Anything related to corporate is a period, administrative cost.

Warehouse and inventory movement are period.