Question

Selected costs related to Apple’s iPad are listed below. Classify each cost as either direct materials (DM), direct labor (DL), factory overhead (FO), selling expenses (S), or general and administrative (GA) expenses.

1. Display screen	5. Glue to hold iPad cases together
2. Assembly line supervisor salary	6. Uniform provided for each factory worker
3. Wages for assembly workers	7. Wages for retail store workers
4. Salary for chief executive officer	8. Depreciation (straight-line) on robotic equipment used in assembly

Short answer

1. Display screen	DM
2. Assembly line supervisor salary	FO
3. Wages for assembly workers	DL
4. Salary for chief executive officer	GA
5. Glue to hold iPad cases together	DL
6. Uniform provided for each factory worker	FO
7. Wages for retail store workers	S
8. Depreciation (straight-line) on robotic equipment used in assembly	FO

Step-by-step solution

Definition of Depreciation

The factory overheads of the business entity include the non-cash expense incurred by the business entity in respect of the fixed asset known as depreciation. It is a charge on the fixed asset of the business entity.

Cost classification

1. Direct material: The cost of material used in the production process by the business entity that can be identified directly from the inspection of the product is known as direct material.
2. Direct labor: The cost incurred for paying the employees’ salaries engaged in the production process is known as direct labor.
3. Factory overhead: The expenses incurred by the business entity during the manufacturing process other than direct labor and material are known as factory overhead.
4. Selling expenses: The cost incurred for selling and distributing the product produced by the business entity is known as the selling expense.
5. General and administrative expenses:A business entity must incur costs for operating the business entity are known as general and administrative expenses. These expenses are incurred even if the production is zero.