🎯Manufacturing Costs: 14 MCQs

Responses

1. 

   Pooja Arora 25 November 2024

   we are calculating total direct manufacturing cost in both the questions. Why OH are added in Energy cooperation question and not in L&T. (Quest. 6 & 10) Please explain

   1. 

      Maroun, CPA 27 November 2024

      Hello Pooja,

      The total manufacturing costs in question 10 are already provided as $106,000, and your task is to compute the manufacturing overhead.

      I recommend reviewing the explanation in the question carefully, and feel free to reach out if you have any further questions.

2. 

   Isaac Shin 1 March 2025

   Please fix the typo for question 10. “direct labor cost $20,000 and direct labor cost was 40% of Prime cost. ” -> “direct material cost $20,000 and direct labor cost was 40% of Prime cost”

3. 

   Isaac Shin 1 March 2025

   direct labor cost $20,000 was 40% of Prime cost
   or
   direct labor cost $20,000 and that cost was 40% of Prime cost.

   1. 

      Maroun, CPA 2 March 2025

      Hello Isaac,

      I’ve updated the question.
      Thank you for bringing this to our attention!

4. 

   Omena Abenabe 8 May 2025

   Question 13, why isn’t Fixed selling and administrative expense categorized as indirect manufacturing cost?

   1. 

      Maroun, CPA 10 May 2025

      Hello Omena,

      Indirect manufacturing cost (manufacturing overhead) includes only those costs that are incurred INSIDE the factory but cannot be traced directly to individual units (items such as indirect materials, indirect labor, factory utilities, depreciation on production equipment, and other plant-related expenses).

      Selling and administrative costs—whether variable or fixed—occur OUTSIDE the production process and therefore are treated as period expenses, not as manufacturing overhead. Lipton’s fixed selling and administrative expense is a headquarters/marketing cost, so it is excluded when you compute indirect manufacturing cost. That is why the total overhead figure stops at $23,650 (variable overhead of $12,650 plus fixed manufacturing overhead of $11,000) and does not add the $3,600 of fixed S&A.

      I hope this makes sense!

5. 

   Imran Leghari 14 June 2025

   Answer to question 6 should be $306400, based on following calculations.

   DM $124,800 Per Unit 10.4
   DL $ 90,000 Per Unit 7.5
   VAR OH $ 39,600 Per Unit 3.3
   Fix OH $ 52,000 Per Unit 4.3

   since the production of 12k is till in relevant range therefore the fixed cost will remain the same as $ 52000 but per unit will reduce from 5.2 to 4.3, please correct me if I am wrong.

   1. 

      Maroun, CPA 16 June 2025

      Hello Imran,

      Remember that “direct manufacturing cost” means only the costs that can be traced directly to each unit, namely, direct materials and direct labor.
      Manufacturing overhead (whether variable or fixed) is always classified as an indirect cost because it cannot be traced to a single unit without allocation.

      For 12,000 units:
      – Direct materials: 10.40 per unit × 12,000 = 124,800
      – Direct labor: 7.50 per unit × 12,000 = 90,000

      Total direct manufacturing cost = 124,800 + 90,000 = 214,800.

      The variable and fixed manufacturing-overhead figures you added ($39,600 and $52,000) are part of indirect manufacturing cost, so they don’t belong in the total when the question asks only for direct manufacturing cost. That’s why the keyed answer of $214,800 is correct.

      Let me know if this makes sense!

      1. 

         Imran Leghari 17 June 2025

         thank you for clarification

         1. 

            Maroun, CPA 19 June 2025

            You’re most welcome, Imran!

6. 

   Karthi J 14 May 2026

   Explain this

   1. 

      Maroun, CPA 15 May 2026

      Hello Karthi,

      Direct manufacturing cost includes only the costs that can be directly traced to the units produced.

      In this question, the direct manufacturing costs are:

      Direct materials = $8.05 per unit
      Direct labor = $4.50 per unit

      Thus, direct manufacturing cost per unit is:
      $8.05 + $4.50 = $12.55

      Since Blackberry produced 7,000 units, the total direct manufacturing cost is:
      $12.55 × 7,000 = $87,850

      Answer choice D is correct: $87,850.

      The other costs are not included because they are either manufacturing overhead or selling and administrative costs. Direct manufacturing cost includes only direct materials and direct labor.

      Hope this helps!