7-1 The following costs have been incurred by a manufacturer of small leather go

Question

7-1 The following costs have been incurred by a manufacturer of small leather goods: 1. hides of various leather 2. dyes to color the leather warehouse costs to store the dyed leather while drying 4. patterns and dies used to guide the cutting of the pieces into the desired shape 5. the salary of the plant manager's administrative assistant 6 costs of the warehouse to store fi 7. under-applied factory overhead Instructions Determine whether the cost of each of the above items is included in the cost of inventory. Provide a brief explanation of your answer for each

Explanation / Answer

Item of cost Whether to be included in the cost of inventory Explanation 1 hides of various leather Yes Is a direct cost of the product 2 dyes to color the leather Yes Is a direct cost of the product 3 warehouse costs to store dyed leather while drying Yes is an indirect cost required for production as drying dyed leather is part of the production process. 4 Patterns and dies used to guide the cutting of the pieces into the desired shape. Yes is direct cost and hence inventoriable. 5 the salary of the plant manager's administrative assistant Yes Though, the assistant is rendering administrative services to the plant manager, it is required for the effective functioning of the plant manage. 6 costs of the warehouse to store finished goods No It is post production costs 7 under-applied factory overhead Yes Can be included, it they are significant. Otherwise, the whole is chargeable to COGS.

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