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This posting addresses types of costs.

Classify each of the following costs incurred in manufacturing bicycles as variable (V), fixed (F), or mixed (M) cost (using number of units produced as the activity measure). Also indicate whether the cost is direct material (DM), direct labor (DL), or overhead (OH).

Wayside Machine Tool Company purchased a $600,000 welding machine to use in production of large machine tools and robots. The welding machine was expected to have a life of 10 years and a salvage value at time of disposition of $60,000. The company uses straight-line depreciation. During its first operating year, the machine produced 600 machines of which 480 were sold.

A. What part of the $600,000 machine cost expired?
B. Where would each of the amounts related to this machine appear on the financial statements at the end of the first year of operations?

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Solution Summary

The solution provides the exact answers for classifying costs incurred manufacturing bicycles as variable (V), fixed (F), or mixed (M) cost (using number of units produced as the activity measure). It also indicates whether the cost is direct material (DM), direct labor (DL), or overhead (OH).

The second part of the solution examines the case of Wayside Machine Tool Company, and which parts of the purchase are expired costs, and also discusses where would each of the amounts related to this machine appear on the financial statements at the end of the first year of operations.

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