Exercise 1-1 Identifying Direct and Indirect Costs [LO1-1] Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics. Required: For each of the following costs incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object. Direct Cost/Indirect Cost Direct Cost Cost Cost Object Ex. Catered food served to patients A particular patient 1. The wages of pediatric nurses The pediatric department 2. Prescription drugs A particular patient 3. Heating the hospital The pediatric department 4. The salary of the head of pediatrics The pediatric department 5. The salary of the head of pediatrics A particular pediatric patient 6. Hospital chaplain's salary A particular patient 7. Lab tests by outside contractor A particular patient 8. Lab tests by outside contractor A particular department Exercise 1-3 Classifying Costs as Product or Period Costs (LO1-3] Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its growth. The bank requires financial statements before approving the loan. Required: Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank. Product Cost / Period Cost Costs 1. Depreciation on salespersons' cars. 2. Rent on equipment used in the factory. 3. Lubricants used for machine maintenance. 4. Salaries of personnel who work in the finished goods warehouse. 5. Soap and paper towels used by factory workers at the end of a shift. 6. Factory supervisors' salaries. 7. Heat, water, and power consumed in the factory. 8. Materials used for boxing products for shipment overseas. (Units are not normally boxed.) 9. Advertising costs. 10. Workers' compensation insurance for factory employees. 11. Depreciation on chairs and tables in the factory lunchroom. 12. The wages of the receptionist in the administrative offices. 13. Cost of leasing the corporate jet used by the company's executives. 14. The cost of renting rooms at a Florida resort for the annual sales conference. 15. The cost of packaging the company's product.

The classification of Direct cost and indirect cost of the hospital using cost objects can be easily done . Where the cost classification based on the patients it is a direct cost and where the classification is based on department it is indirect cost. Cost object Direct cost/Indirect cost Cost Cost Catered food served to patients |A particular patient The pediatric department Direct cost A particular patient The pediatric department Indirect cost The pediatric department Direct cost |A particular patient |A particular patient A particular patient The particular department Direct cost Ex. Direct cost 1 The wages of pediatric nurses 2 prescription drugs Direct cost 3 heating the hospital 4 The salary of the heating of pediatrics 5 The salary of the heating of pediatrics 6 hospital chaplain's salary 7 Lab tests by outside contractor 8 Lab tests by outside contractor Indirect cost Indirect cost Direct cost Classification of cost into product or period cost:- Product Cost/Period Cost Costs 1 Depreciation on Salesperson' cars 2 Rent on equipment used in the factory 3 Lubricants used for machine maintenance 4 Salaries of personnel who work in the finished goods warehouse.5 Soap and paper towels used by factory workers at the end of a shift. 6 Factory supervisors' salaries 7 Heat, water and power consumed in the factory 8 Materials used for boxing products for shipment overseas. (Units are not normally Period cost 9 Advertising costs 10 Workers' compensation insurance for factory employees. |11 Depreciation on chairs and tables in the factory lunchroom. | 12 The wages of the receptionist in the administrative offices 13 Cost of leasing the corporate jet used by the company's executives.14 The cost of renting rooms at a Florida resort for the annual sales conference. 15 The cost of packaging the company's product Period cost Product cost Product cost Period cost Product cost Product cost Product cost Period cost Product cost Product cost Period cost Period cost Period cost Product cost .