Thought Provokers

LO 2.1In a team of two or three students, interview the manager/owner of a local business. In this interview, ask the manager/owner the following questions:

1. Does the business collect and use cost information to make decisions?
2. Does it have a specialist in cost estimation who works with this cost data? If not, who is responsible for the collection of cost information? Be as specific as possible.
3. What type of cost information does the business collect and how is each type of information used?
4. How important does the owner/manager believe cost information is to the success of the business?

Then, write a report to the instructor summarizing the results of the interview.

Content of the memo must include

• date of the interview,
• the name and title of the person interviewed,
• name and location of the business,
• type of business (service, merchandising, manufacturing) and brief description of the goods/services provided by the business, and
• responses to questions A–D.

LO 2.2This list contains costs that various organizations incur; they fall into three categories: direct materials (DM), direct labor (DL), or overhead (OH).⁷

1. Classify each of these items as direct materials, direct labor, or overhead.
   1. Glue used to attach labels to bottles containing a patented medicine.
   2. Compressed air used in operating paint sprayers for Student Painters, a company that paints houses and apartments.
   3. Insurance on a factory building and equipment.
   4. A production department supervisor’s salary.
   5. Rent on factory machinery.
   6. Iron ore in a steel mill.
   7. Oil, gasoline, and grease for forklift trucks in a manufacturing company’s warehouse.
   8. Services of painters in building construction.
   9. Cutting oils used in machining operations.
   10. Cost of paper towels in a factory employees’ washroom.
   11. Payroll taxes and fringe benefits related to direct labor.
   12. The plant electricians’ salaries.
   13. Crude oil to an oil refinery.
   14. Copy editor’s salary in a book publishing company.
2. Assume your classifications could be challenged in a court case. Indicate to your attorneys which of your answers for part a might be successfully disputed by the opposing attorneys and why. In which answers are you completely confident?