Cost Accounting Quiz: Cost Classification By Function
20 questions · exam conditions
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Cost Classification By FunctionQuestion 1 of 20

Sales commission above quota is classified as:

Direct labor cost
Administrative expense
Manufacturing overhead
Selling expense
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Cost Accounting Quiz

Cost Accounting Quiz: Cost Classification By Function

Practice Cost Classification By Function in Cost Accounting with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Cost Classification By Function, giving you a quick way to practice the rules, question types, and explanations that matter most for Cost Accounting.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

Sales commission above quota is classified as:

  1. Direct labor cost
  2. Administrative expense
  3. Manufacturing overhead
  4. Selling expense (correct answer)
Explanation: Sales commissions are incurred to generate sales, so they are classified as selling expenses. The most tempting wrong choice is manufacturing overhead, but that applies only to production costs, not costs from the sales function.

Question 2

Factory janitorial wages are classified as:

  1. Manufacturing overhead (correct answer)
  2. Direct labor cost
  3. Administrative expense
  4. Direct material cost
Explanation: Factory janitorial wages support the production area but cannot be traced to a specific product, so they are indirect labor. Indirect labor is included in manufacturing overhead. The tempting mistake is to call this direct labor cost, but direct labor covers only workers who directly transform materials into finished goods.

Question 3

Legal staff work on factory contracts is classified as:

  1. Administrative expense (correct answer)
  2. Manufacturing overhead
  3. Selling expense
  4. Direct labor cost
Explanation: Legal staff provide company-wide legal support, including work on factory contracts, rather than directly producing goods or running factory operations. Their wages are therefore administrative expenses. Manufacturing overhead is tempting because the contracts involve the factory, but overhead covers production-related costs such as supervision and utilities, not legal services.

Question 4

Trade-show booth costs to exhibit products are:

  1. Manufacturing overhead
  2. Selling expense (correct answer)
  3. Administrative expense
  4. Direct labor cost
Explanation: Trade-show booth costs are incurred to promote and sell products, so they belong to selling expense. They are not part of making goods or general administration. The tempting wrong answer is manufacturing overhead, but that category covers production costs, not customer outreach.

Question 5

Preparing annual shareholder reports is classified as:

  1. Selling expense
  2. Administrative expense (correct answer)
  3. Manufacturing overhead
  4. Direct material cost
Explanation: Annual shareholder reports support corporate governance and general management, not production or selling activities. Therefore they are classified as administrative expense. Manufacturing overhead is the most tempting wrong choice, but it covers factory-related costs such as indirect labor and utilities, not investor reporting.

Question 6

Finished-goods warehouse rent is classified as:

  1. Selling expense (correct answer)
  2. Manufacturing overhead
  3. Administrative expense
  4. Direct material cost
Explanation: Warehouse rent for finished goods is part of getting the product ready for sale and distribution, so you classify it as a selling expense. Manufacturing overhead only covers costs incurred in production, before the goods are finished. The tempting wrong answer is manufacturing overhead, but it applies to production, not storage of completed goods.

Question 7

Forklift wages to move raw materials in a factory are:

  1. Direct material cost
  2. Direct labor cost
  3. Selling expense
  4. Manufacturing overhead (correct answer)
Explanation: Moving raw materials supports production but does not directly transform or attach to a product, so forklift wages are indirect labor and belong in manufacturing overhead. The tempting wrong answer is direct labor, but direct labor is only work performed directly on the product itself.

Question 8

Direct workers paid while a machine is idle are:

  1. Selling expense
  2. Direct labor cost
  3. Manufacturing overhead (correct answer)
  4. Administrative expense
Explanation: Pay for direct workers during machine idle time is idle time cost, not traceable to specific units of product. Since it is indirect labor incurred in the factory, it is part of manufacturing overhead. The tempting wrong answer is direct labor cost, but direct labor applies only to time spent actively producing the product.

Question 9

Freight to bring raw materials into the factory is:

  1. Direct material cost (correct answer)
  2. Selling expense
  3. Manufacturing overhead
  4. Administrative expense
Explanation: Freight paid to bring raw materials into the factory attaches to the materials, so it becomes part of their inventory cost and thus included in direct material cost when used. Manufacturing overhead is the tempting wrong answer because freight feels like a factory support expense, but it is directly traceable to the raw materials, not an overhead cost.

Question 10

Assembly wages on a custom product are:

  1. Administrative expense
  2. Manufacturing overhead
  3. Direct labor cost (correct answer)
  4. Selling expense
Explanation: Assembly wages are paid to workers who physically build the custom product, so those wages are directly traceable to that product. That makes them direct labor, not overhead or a period expense. Manufacturing overhead is tempting, but it includes indirect costs such as supervisors and factory utilities, not wages for hands-on assembly.

Question 11

A manufacturer rents a warehouse for finished goods awaiting shipment. The rent is classified as:

  1. Manufacturing cost
  2. Factory overhead
  3. Administrative
  4. Selling expense (correct answer)
Explanation: Rent for a warehouse holding finished goods awaiting shipment is part of distribution, so you classify it as a selling expense. The tempting wrong answer is factory overhead, but factory overhead covers production-related costs such as manufacturing sites or storing raw materials and work in process, not the cost of holding goods after they are ready to sell.

Question 12

A furniture maker pays freight to deliver lumber to its factory. This cost is classified as:

  1. Direct materials (correct answer)
  2. Factory overhead
  3. Selling expense
  4. Administrative
Explanation: Freight to bring lumber to the factory is freight-in, a cost necessary to get raw materials ready for use. Add it to the lumber's purchase price, so it's part of direct materials. The tempting pick is factory overhead, but overhead covers indirect production costs like factory utilities and supervision, not the incoming freight for a specific raw material.

Question 13

A manufacturer's internal audit department reviews factory and sales records. Its costs are classified as:

  1. Selling expense
  2. Factory overhead
  3. Administrative (correct answer)
  4. Direct labor
Explanation: An internal audit department supports management and control across the company, so its costs are administrative expenses rather than costs of production or selling. The tempting wrong answer is factory overhead, but reviewing factory records does not turn the audit department into a manufacturing cost.

Question 14

A lathe operator's regular pay is direct labor. Without a rush order, the overtime premium is classified as:

  1. Direct labor cost
  2. Factory overhead (correct answer)
  3. Selling expense
  4. Administrative
Explanation: Overtime premium is the extra amount paid above the regular wage rate. When overtime is not caused by a rush order, it cannot be traced to a specific job, so it is classified as factory overhead. The tempting wrong answer is direct labor cost, but direct labor includes only regular pay and overtime premium caused by a rush order; general overtime premium is overhead.

Question 15

A manufacturing company incurred the following costs during the month:

  • Direct materials used: $85,000
  • Direct labor: $60,000
  • Factory supervisor salaries: $25,000
  • Sales commissions: $30,000
  • Depreciation on factory equipment: $15,000
  • Advertising expense: $20,000
  • Corporate office rent: $18,000
  • Indirect materials used in factory: $10,000

Based on the information provided, what are the total product costs for the month?

  1. $145,000
  2. $110,000
  3. $195,000 (correct answer)
  4. $263,000
Explanation: Product costs (or inventoriable costs) consist of Direct Materials (DM), Direct Labor (DL), and Manufacturing Overhead (MOH).
  • DM = $85,000
  • DL = $60,000
  • MOH = Factory supervisor salaries (25,000)+Depreciationonfactoryequipment(25,000) + Depreciation on factory equipment (15,000) + Indirect materials ($10,000) = $50,000. Total Product Costs = DM + DL + MOH = $85,000 + $60,000 + $50,000 = $195,000. The other costs (sales commissions, advertising, corporate office rent) are period costs.

Question 16

A company that manufactures drones incurs the following costs for a new model:

  • Salaries of engineers developing the drone's software: $200,000
  • Cost of microprocessors to be installed in the drones: $150,000
  • Cost of materials to build non-functional prototypes for trade shows: $15,000
  • Wages of assembly line workers for the first production run: $90,000

What is the total amount of these costs that should be classified as product costs?

  1. $240,000 (correct answer)
  2. $455,000
  3. $255,000
  4. $440,000
Explanation: Product costs are costs of manufacturing the goods intended for sale. This includes direct materials and direct labor.
  • Microprocessors are direct materials: $150,000
  • Assembly wages are direct labor: $90,000 Total Product Costs = $150,000 + $90,000 = $240,000. Engineering salaries are Research & Development (R&D) costs, and trade show prototypes are marketing/selling costs. Both R&D and marketing are period costs, not product costs.

Question 17

Due to a flaw in a production machine, several units of product had to be reworked to meet quality standards. The wages of the direct labor employees who performed the rework totaled $2,000. This level of rework is considered normal for the production process.

How should the $2,000 of rework labor cost be classified?

  1. As Direct Labor, added to the cost of the specific units reworked.
  2. As Manufacturing Overhead, spread across all units produced. (correct answer)
  3. As an Administrative Expense, since it resulted from an error.
  4. As a loss on the income statement, separate from cost of goods sold.
Explanation: The cost of rework for normal, expected spoilage is considered a normal cost of production. As an indirect manufacturing cost, it is charged to Manufacturing Overhead and allocated to all units produced during the period. It is not charged to direct labor because it is not part of the initial, efficient transformation of materials. If the rework were due to abnormal or unusual circumstances, it would be treated as a loss.

Question 18

A company's headquarters provides centralized services, such as accounting and human resources, to its two factories and its sales division. The total cost of these headquarters' services is $1,000,000. For internal management purposes, these costs are allocated to the divisions. For external financial reporting under U.S. GAAP:

For external financial reporting under U.S. GAAP, the $1,000,000 cost of headquarters' services should be classified as:

  1. Partially as manufacturing overhead and partially as selling expense, based on an allocation.
  2. Entirely as manufacturing overhead.
  3. Entirely as an administrative expense. (correct answer)
  4. As an asset to be amortized over the service period.
Explanation: For external financial reporting, costs associated with the overall management of the company (like centralized accounting and HR at headquarters) are treated as administrative costs. These are period costs and are not allocated to inventory, even though they may provide some benefit to the manufacturing function. Allocating these costs is a common practice for internal decision-making but not for GAAP-based external financial statements.

Question 19

A company reports total depreciation expense of $300,000 for the year. The company's assets are located in a single building, with space utilized as follows: 60% for manufacturing operations, 25% for administrative offices, and 15% for the sales department.

What is the total amount of depreciation that should be classified as a period cost for the year?

  1. $180,000
  2. $300,000
  3. $75,000
  4. $120,000 (correct answer)
Explanation: Period costs are not attached to the product and are expensed in the period incurred. They include selling and administrative costs. The portion of depreciation related to administrative offices and the sales department are period costs.
  • Administrative portion: $300,000 * 25% = $75,000
  • Sales portion: $300,000 * 15% = $45,000 Total Period Cost = $75,000 + $45,000 = 120,000.Theremaining60120,000. The remaining 60% (180,000) is depreciation on manufacturing space, which is a product cost (Manufacturing Overhead).

Question 20

An employee at a manufacturing plant is responsible for fixing production equipment when it breaks down. The cost of this employee's wages, when incurred due to a normal level of equipment failure, is properly classified as:

An employee at a manufacturing plant is responsible for fixing production equipment when it breaks down. The cost of this employee's wages, when incurred due to a normal level of equipment failure, is properly classified as:

  1. Direct labor.
  2. An administrative expense.
  3. Manufacturing overhead. (correct answer)
  4. A selling expense.
Explanation: The wages of a maintenance employee are an example of indirect labor. The work is essential for production to occur, but the cost cannot be conveniently traced to specific units of product. Therefore, it is classified as manufacturing overhead. It is not direct labor because the employee does not physically work on the product itself. It is not an administrative or selling expense because the cost is incurred within the factory.