Question

ethan allen interiors, inc. is a leading manufacturer and retailer of furniture and home decorating accessories. its company-owned operations include sawmills, manufacturing plants, and retail stores. classify each of the following product costs as direct materials, indirect materials, direct labor, indirect labor, or other manufacturing overhead.

a. maple logs purchased and cut in the sawmill
b. foam used in stuffing sofa cushions
c. silk brocade fabric used to upholster chairs
d. wages paid to the woodworkers who assemble dresser drawers
e. glue used to strengthen the bed frame joints
f. staples used to secure upholstery fabric to the chair seats
g. electricity to heat and light the factory
h. the sawmill foremans salary
i. wages paid to the forklift operator in the raw materials warehouse
j. depreciation on factory equipment

Explanation:

🆕 New Concept Discovered: Product Cost Classification
Categorizing manufacturing costs into direct/indirect materials, labor, and overhead.

Step 1: Classify Materials (Items a, b, c, e, f)

To classify materials, we determine if they are a primary, easily traceable part of the finished product (Direct Materials) or minor, difficult-to-trace items (Indirect Materials):

• a. Maple logs purchased and cut in the sawmill: This is the primary raw material used to make the wood furniture. It is significant and directly traceable.
• Classification: Direct materials
• b. Foam used in stuffing sofa cushions: This is a major component of a cushioned sofa that is easily traced to the product.
• Classification: Direct materials
• c. Silk brocade fabric used to upholster chairs: This is the primary exterior material for the chairs, easily measured and traced.
• Classification: Direct materials
• e. Glue used to strengthen the bed frame joints: Glue is used in very small, hard-to-measure quantities per bed. It is not cost-effective to trace individually.
• Classification: Indirect materials
• f. Staples used to secure upholstery fabric to the chair seats: Like glue, staples are minor, low-cost items that are difficult to trace directly to each unit.
• Classification: Indirect materials

Step 2: Classify Labor (Items d, h, i)

To classify labor, we determine if the workers physically assemble/touch the product (Direct Labor) or support the production process without directly working on the product itself (Indirect Labor):

• d. Wages paid to the woodworkers who assemble dresser drawers: These workers physically build the product.
• Classification: Direct labor
• h. The sawmill foreman's salary: The foreman supervises the workers but does not physically manufacture the goods.
• Classification: Indirect labor
• i. Wages paid to the forklift operator in the raw materials warehouse: The operator moves materials but does not directly assemble or manufacture the furniture.
• Classification: Indirect labor

Step 3: Classify Factory Overhead (Items g, j)

Manufacturing overhead includes all manufacturing costs except direct materials and direct labor. This includes indirect materials, indirect labor, and general factory-related costs:

• g. Electricity to heat and light the factory: This is a utility cost necessary to run the manufacturing facility, but it cannot be directly traced to a specific piece of furniture.
• Classification: Other manufacturing overhead
• j. Depreciation on factory equipment: This is a non-cash expense associated with the machinery used in the production process.
• Classification: Other manufacturing overhead

Answer:

• a. Maple logs purchased and cut in the sawmill: Direct materials
• b. Foam used in stuffing sofa cushions: Direct materials
• c. Silk brocade fabric used to upholster chairs: Direct materials
• d. Wages paid to the woodworkers who assemble dresser drawers: Direct labor
• e. Glue used to strengthen the bed frame joints: Indirect materials
• f. Staples used to secure upholstery fabric to the chair seats: Indirect materials
• g. Electricity to heat and light the factory: Other manufacturing overhead
• h. The sawmill foreman's salary: Indirect labor
• i. Wages paid to the forklift operator in the raw materials warehouse: Indirect labor
• j. Depreciation on factory equipment: Other manufacturing overhead