custom designs for retail sale


Cape Cod Shirt Shop manufactures T-shirts and decorates them with custom designs for retail sale on the premises. Several costs incurred by the company are listed below. For each cost, indicate which of the following classifications best describe the cost. More than one classification may apply to the same cost item. For purposes of classifying costs as fixed or variable, assess cost behavior relative to the output quantity of finished T-shirts. (If your answer is “No” leave the cells blank.)

Cost Classifications
a. Variable
b. Fixed
c. Period
d. Product
e. Administrative
f. Selling
g. Manufacturing
h. Research and development
i. Direct material
j. Direct labor
k. Manufacturing overhead

Cost Items
1. Cost of fabric used in T-shirts.
2. Wages of shirt makers.
3. Cost of new sign in front of retail T-shirt shop.
4. Wages of the employee who repairs the firm’s sewing machines.
5. Cost of electricity used in the sewing department.
6. Wages of T-shirt designers and painters.
7. Wages of sales personnel.
8. Depreciation on sewing machines.
9. Rent on the building. Part of the building’s first floor is used to make and paint Tshirts. Part of it is used for the retail sales shop. The second floor is used for
administrative offices and storage of raw material and finished goods.
10.Cost of daily advertisements in local media.
11.Wages of designers who experiment with new fabrics, paints, and T-shirt designs.
12.Cost of hiring a pilot to fly along the beach pulling a banner advertising the shop.
13.Salary of the owner’s secretary.
14.Cost of repairing the gas furnace.
15.Cost of insurance for the production employees.


Evaluate each of the following costs and determine whether the cost is (a) a product cost or a period cost, (b) variable or fixed in terms of behavior, and (c) for the product costs only, whether the cost is properly classified as direct material, direct labor, or manufacturing overhead. For each period cost select NA for column (c).

Consider the following costs that were incurred during the current year:

1. Tire costs incurred by Ford Motor Company.
2. Sales commissions paid to the sales force of Dell Inc.
3. Wood glue consumed in the manufacture of Rooms To Go furniture.
4. Hourly wages of refinery security guards employed by ExxonMobil.
5. The salary of a financial vice president of Hewlett Packard.
6. Advertising costs of Coca-Cola.
7. Straight-line depreciation on factory machinery of Boeing Corporation.
8. Wages of assembly-line personnel of Whirlpool Corporation.
9. Delivery costs incurred by Ben & Jerry’s for a shipment of their ice cream to a grocery store.
10. Newsprint consumed in printing The New York Times.
11. Plant insurance costs of Texas Instruments.
12. LED costs incurred in light-bulb manufacturing of GE Lighting.


Evaluate the following costs just cited, and determine whether the associated dollar amounts would be found on the firm’s balance sheet, income statement, or schedule of cost of goods manufactured. (Note: In some cases, more than one answer will apply.)

1. Salaries of players on the Boston Red Sox.
2. Year-end completed goods of Levi Strauss jeans.
3. Executive compensation costs at Home Depot.
4. Advertising costs for Sony.
5. Costs incurred during the period to insure a Ford plant against fire and flood losses.
6. Current year’s depreciation on a Carnival Cruise Line ship.
7. The cost of printer ink and paper used during the period by Shutterfly.
8. Assembly-line wage cost incurred at a Kona bicycle plant.
9. Year-end production in process at Lenovo computer manufacturer.
10.The cost of products sold to customers of a Target store.
11.The cost of products sold to distributors of carpet manufacturer Shaw Floors.

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