Question

Determine whether each of the following cost should be classified as direct materials (DM), direct labor (DL), or manufacturing overhead (MO).
(a) ____ Frames and tires used in manufacturing bicycles.

(b) ____Wages paid to production workers.

(c) ____ Insurance on Factory equipment and machinery

(d) ____ Depreciation on factory equipment

Answer 1

Answer:

(a) DM

(b) DL

(c) MO

(d) MO

Explanation:

(a)  Frames and tires used in manufacturing bicycles.

This is cost directly related to the materials used in manufacturing a product and, thus, should be classified as a direct material cost (DM).

(b) Wages paid to production workers.

This cost is directly related to pay for the labor required to manufacture a product and, thus, should be classified as a direct labor cost (DL).

(c) Insurance on Factory equipment and machinery.

Although this is a cost incurred from manufacturing, it can't be directly linked to either materials or labor since it is an structural cost and, therefore, should be classified as a manufacturing overhead cost (MO).

(d) Depreciation on factory equipment

For the same reason as the previous item, this should be classified as a manufacturing overhead cost (MO).