Define the following: direct material costs, direct manufacturing-labor costs, manufacturing overhead costs, prime costs, and conversion costs.

Year 1 financial data for the ABC Company is as follows: Sales\(\quad$$\$ 5,000,000\) Direct materials\(\quad\)850,000 Direct manufacturing labor\(\quad\)1,700,000 Variable manufacturing overhead\(\quad\)400,000 Fixed manufacturing overhead\(\quad\)750,000 Variable \(\mathrm{SG} \& \mathrm{A}$$\quad\)150,000 Fixed \(\mathrm{SG} \& \mathrm{A}$$\quad\)250,000 Under the absorption method, Year 1 cost of Goods sold will be: a. \(\$ 2,550,000\) b. \(\$ 2,950,000\) c. \(\$ 3,100,000\) d. \(\$ 3,700,000\)

Applewhite Corporation, a manufacturing company, is analyzing its cost structure in a project to achieve some cost savings. Which of the following statements is/are correct? I. The cost of the direct materials in Applewhite's products is considered a variable cost. II. The cost of the depreciation of Applewhite's plant machinery is considered a variable cost because Applewhite uses an accelerated depreciation method for both book and income tax purposes. III. The cost of electricity for Applewhite's manufacturing facility is considered a fixed cost, even if the cost of the electricity has both variable and fixed components. 1\. \(I,\) II, and III are correct. 2\. I only is correct. 3\. II and III only are correct. 4\. None of the listed choices is correct.

What is a cost driver? Give one example.

Computing and interpreting manufacturing unit costs. Minnesota Office Products (MOP) produces three different paper products at its Vaasa lumber plant: Supreme, Deluxe, and Regular. Each product has its own dedicated production line at the plant. It currently uses the following three-part classification for its manufacturing costs: direct materials, direct manufacturing labor, and manufacturing overhead costs. Total manufacturing overhead costs of the plant in July 2017 are \(\$ 150\) million (\$15 million of which are fixed). This total amount is allocated to each product line on the basis of the direct manufacturing labor costs of each line. Summary data (in millions) for July 2017 are as follows: $$\begin{array}{lccc} & \text { Supreme } & \text { Deluxe } & \text { Regular } \\ \hline \text { Direct material costs } & \$ 89 & \$ 57 & \$ 60 \\ \text { Direct manufacturing labor costs } & \$ 16 & \$ 26 & \$ 8 \\ \text { Manufacturing overhead costs } & \$ 48 & \$ 78 & \$ 24 \\ \text { Units produced } & 125 & 150 & 140 \end{array}$$ 1\. Compute the manufacturing cost per unit for each product produced in July 2017 . 2\. Suppose that, in August 2017 , production was 150 million units of Supreme, 190 million units of Deluxe, and 220 million units of Regular. Why might the July 2017 information on manufacturing cost per unit be misleading when predicting total manufacturing costs in August \(2017 ?\)

Classification of costs, merchandising sector. Band Box Entertainment (BBE) operates a large store in Atlanta, Georgia. The store has both a movie (DVD) section and a music (CD) section. BBE reports revenues for the movie section separately from the music section. Classify each cost item (A-H) as follows: a. Direct or indirect (D or I) costs of the total number of DVDs sold. b. Variable or fixed (V or F) costs of how the total costs of the movie section change as the total number of DVDs sold changes. (If in doubt, select on the basis of whether the total costs will change substantially if there is a large change in the total number of DVDs sold. You will have two answers (D or I; V or F) for each of the following items: Cost Item A. Annual retainer paid to a video distributor B. cost of store manager's salary C. costs of DVDs purchased for sale to customers D. Subscription to DVD Trends magazine E. Leasing of computer software used for financial budgeting at the BBE store F. cost of popcorn provided free to all customers of the BBE store G. cost of cleaning the store every night after closing H. Freight-in costs of DVDs purchased by BBE