COST TERMINOLOGY AND

COST BEHAVIORS

Practice Exercises
(Cost behavior and classification)
Indicate whether each of the following items is a variable (V), fixed (F), or mixed (M) cost
and whether it is a product/service (PT) or period (PD) cost. If some items have alternative
answers, indicate the alternatives and the reasons for them.

a. Wages of factory maintenance workers

b. Wages of forklift operators who move finished goods from a central warehouse to
the outbound loading dock
c. Insurance premiums paid on the headquarters of a manufacturing company
d. Cost of labels attached to shirts made by a company
e. Property taxes on a manufacturing plant
f. Paper towels used in factory restrooms
g. Salaries of office assistants in a law firm
h. Freight costs of acquiring raw material from suppliers
i. Computer paper used in an accounting firm
j. Cost of wax to make candles
k. Freight-in on a truckload of furniture purchased for resale
LO.5 (Product cost classifications) Barbie Co. makes aluminum canoes.
The company’s June 2019 costs for material and labor were as follows:

Material costs
Janitorial supplies P 1,800
Chrome rivets to assemble canoes 12,510
Sealant 1,230
Aluminum 1,683,000

Labor costs
Janitorial wages P 9,300
Aluminum cutters 56,160
Salespeople salaries 43,050
Welders 156,000

Factory supervisor salaries 101,250

a. What is the direct material cost for June?
b. What is the direct labor cost for June?
(Labor cost classification) Tidy House produces a variety of household products. The firm
operates 24 hours per day with three daily work shifts. The first-shift workers receive
“regular pay.” The second shift receives an 8 percent pay premium, and the third shift
receives a 12 percent pay premium. In addition, when production is scheduled on
weekends, the firm pays an overtime premium of 50 percent (based on the pay rate for
first-shift employees). Labor premiums are included in overhead. The October 2019
factory payroll is as follows:

Total wages for October for 32,000 hours P 435,600

Normal hourly wage for first-shift employees P12
Total regular hours worked, split evenly among the three shifts 27,000

a. How many overtime hours were worked in October?

b. How much of the total labor cost should be charged to direct labor? To overhead?
c. What amount of overhead was for second-shift and third-shift premiums? For
overtime premiums?