Manufacturing and Nonmanufacturing Costs
Response to the following problem:
The Benson Manufacturing Company produces rides for amusement parks. Parts for the rides are purchased from other suppliers. Rides are then assembled in various company plants
Recently, Benson Manufacturing hired two new employees. One will be working in an assembly plant, and the other will be working in the marketing division of the corporate offices as a sales representative.
The assembly plant employee will be paid an annual salary of $34,000, or $17.00 per hour. Her time will be charged to the individual rides that she assembles. The marketing division employee will receive an annual salary of $30,000 plus commission. He will be responsible for both advertising and selling. His salary is for advertising responsibilities, and he will be paid a commission on sales of amusement rides.
1. Should the salary of the assembly plant employee be classified as a manufacturing or a nonmanufacturing cost? Should the salary of the marketing division employee be classified as a manufacturing or a nonmanufacturing cost? How is this classification made?
2. After classifying the salaries as manufacturing or nonmanufacturing costs, determine how the salary costs will affect the cost of assembling the amusement rides. Classify the employee costs as direct, indirect, fixed, variable, product, or period. (Each cost can be classified in more than one way.)