Match each cost item incurred by a manufacturing enterprise to its correct accounting classification in the financial statements.
- Factory supervisor's salaryFactory Overhead (Indirect Labor Cost)
- Depreciation of factory plant and machineryFactory Overhead (Indirect Expense)
- Carriage inwards on raw materialsPrime Cost (Direct Material Cost)
- Sales manager's commissionSelling and Distribution Expense
Answer
Factory supervisor's salary matches Factory Overhead (Indirect Labor Cost); Depreciation of factory plant and machinery matches Factory Overhead (Indirect Expense); Carriage inwards on raw materials matches Prime Cost (Direct Material Cost); Sales manager's commission matches Selling and Distribution Expense.
Factory overheads include all indirect manufacturing expenses incurred in the factory building, such as indirect labor (factory supervisor salary) and indirect factory operational costs (depreciation of factory machinery). Direct costs related to raw material acquisition (carriage inwards) increase prime cost, whereas post-production expenses (sales commission) belong to administrative or selling expenses.
Step-by-Step Solution
Key Concept
Classification of manufacturing expenditures into direct costs (prime cost), factory overheads (indirect labor and indirect expenses), and administrative or selling expenses.