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Direct, Indirect, or Unallocated Costs

Refer to the Lopez Plastics Company example on pages 152-155 and to Exhibit 4-7. The following list gives various resources used by Lopez Plastics Company. Use the letters D, I, and U to indicate how the cost of each resource cost would be classified; D = direct, I = indirect, and U = unallocated.

1. Salary of plant manager
2. Salaries of cost accountants
3. Depreciation on computers used by engineers to design cell phone casings
4. Depreciation of the plant
5. Resin used to make pen casings
6. Salaries of engineers
7. Salaries of operating labor processing pen casings
8. Travel costs of purchasing agent while investigating potential new suppliers of resin

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Cost has been defined by many experts in different terms though the crux of all of them remains same i.e. the price you pay to get something. It may or may not be quantifiable. As per Sprouce, Robert and Mourice "Cost is an exchange price, a foregoing, a sacrifice made to secure some benefit." The Institute of Management Accountants, USA, says "cost is a measurement in monetary terms of the amount of resources used for some purpose." 9 pg 19 cost accounting book.

Solution Summary

Response discusses the Direct, Indirect, or Unallocated Costs