COST CLASSIFICATION

Selected costs associated with a variaty of business situations are shown below: Product
F/V/Semi Direct Indirect Period
1 Salary of the plant manager F /
2 Lubricating oil for machines V
3 Brass rods in making plumbing products
4 Property taxes on a bldg. housing both the factory and the HO F
5 Labor in the repairs and maintenance section
6 Salary of the supervisor in the grinding department F
7 Crude oil used in a refining process which results in various prods V
8 Wages of artists preparing ads for a grocery chain (factory) F
9 Wages of artists preparing ads for a grocery chain (grocery chain) F
10
a Salaries of QA personnel who tests products during production F
b Salaries of software engineers in a prod. Plant using robots F
c Sales commissions of the marketing staff F

COST OF GOODS MANUFACTURED BIROSACK COMPANY

The following data are available about the Birosack Company:

2018 2019 2020

Beginning Materials inventory $ 10,000 $ ? $ 12,000
Ending materials inventory 15,000 ? 11,000
Beginning work in process inventory 30,000 ? 18,000
Ending work in process inventory 24,000 ? 21,000
Direct labor 20,000
Manufacturing overhead 40,000
Materials purchases 30,000

Required: Find cost of goods manufactured for year ?

Beginning Materials inventory 10,000

Add: Material Purchase 30,000
Less: Ending materials inventory 11,000
Direct materials used in production 29,000
Direct Labor 20,000
Manufacturing overhead 40,000
Total Manufacturing cost 89,000
Beginning WIP in inventory 30,000
Less: Ending, WIP in inventory 21,000
Cost of Goods Manufactured 98,000
2-5 RELEVANT INVENTORY COSTS
Wild Side Clothes manufactures designer jeans. At the end of the current year, one line was out of style.
These jeans were carried in inventory at $ 50,000. Geri Wilder, a product line manager, estimates that,
with a little rework cosing $ 8,000, she could sell the entire lot to a discount clothing outlet for $ 15,000.

or Geri figures, the jean could be sold "as is" to a company in northern Mexico for $ 6,000, although Wild
Side would have to pay $ 750 in freight charges. She could also sell the jeans as waste material to a
recycling firm for $ 2,200.
With Rework Sell as is Waste material
Option 1 Option 2 Option 3
SP 30,000 15,000 6,000 2,200

COST 50,000 50,000 50,000 50,000

14,400 64,400 8,000 58,000 - 50,000 750 50,750

(34,400) (43,000) (44,000) (48,550)

1. What is the sunk cost in this situation? 50,000

2. Which is the best choice? OPTION 1
Why? Lesser loss of 43,000

3. Geri could store the jeans for cost of P 130 per month. She says, "I think this style will return in, oh
maybe 8 to 10 years."

She guesses that the jeans might be sold for up to $ 30,000" then, assuming no storge damage and
no inflation. Does tis information affect your analysis? No No

Explain: No need to wait for 8 to 10 years that would only lost only at a loss.

2
OPTION1 OPTION2 OPTION3
Sale Value 15,000 Sale Value 6,000 Net benefit
Additional Cost 8,000 cost 750
Net Benefit 7,000 Net benefit 5,250

3
Sale Value after 10 yrs 30,000

Strange cost (130*12*10) 15,600

Net benefit 12,000

2-6
OPTION3
Net benefit 2,200