Question

The following cost data for the year just ended pertain to Sentiments, Inc., a greeting card manufacturer:

Direct material	$	2,300,000
Advertising expense		99,000
Depreciation on factory building		116,000
Direct labor: wages		470,000
Cost of finished goods inventory at year-end		115,000
Indirect labor: wages		141,000
Production supervisor’s salary		45,000
Service department costs*		100,000
Direct labor: fringe benefits		114,000
Indirect labor: fringe benefits		30,000
Fringe benefits for production supervisor		10,000
Total overtime premiums paid		55,000
Cost of idle time: production employees§		40,000
Administrative costs		150,000
Rental of office space for sales personnel†		15,000
Sales commissions		5,000
Product promotion costs		10,000

*All services are provided to manufacturing departments.

§Cost of idle time is an overhead item; it is not included in the direct-labor wages given above.

†The rental of sales space was made necessary when the sales offices were converted to storage space for raw material.

Required:
1. Compute each of the following costs for the year just ended:

2. One of the costs listed below is an opportunity cost. Identify this cost.

Multiple Choice:

• Rental of office space for sales personnel

• Product promotion costs

• Administrative costs

• Sales commissions

• Direct labor: fringe benefits

• Cost of finished-goods inventory at year-end

Answer 1

Direct material	$ 23,00,000.00
Direct labor: wages	$    4,70,000.00
Direct labor: fringe benefits	$    1,14,000.00
Total prime costs	$ 28,84,000.00
Total manufacturing overhead
Depreciation on factory building	$    1,16,000.00
Indirect labor: wages	$    1,41,000.00
Production supervisor’s salary	$       45,000.00
Service department costs*	$    1,00,000.00
Indirect labor: fringe benefits	$       30,000.00
Fringe benefits for production supervisor	$       10,000.00
Total overtime premiums paid	$       55,000.00
Cost of idle time: production employees§	$       40,000.00
Total manufacturing overhead	$    5,37,000.00
Total Coversion cost
Direct labor: wages	$    4,70,000.00
Direct labor: fringe benefits	$    1,14,000.00
Total manufacturing overhead	$    5,37,000.00
Total Coversion cost	$ 11,21,000.00
Total Product cost
Total prime costs	$ 28,84,000.00
Total manufacturing overhead	$    5,37,000.00
Total Product cost	$ 34,21,000.00
total period cost
Advertising expense	$       99,000.00
Administrative costs	$    1,50,000.00
Rental of office space for sales personnel†	$       15,000.00
Sales commissions	$          5,000.00
Product promotion costs	$       10,000.00
total period cost	$    2,79,000.00
Direct material	$ 23,00,000.00
Direct labor: wages	$    4,70,000.00
Direct labor: fringe benefits	$    1,14,000.00
Total prime costs	$ 28,84,000.00
Total manufacturing overhead
Depreciation on factory building	$    1,16,000.00
Indirect labor: wages	$    1,41,000.00
Production supervisor’s salary	$       45,000.00
Service department costs*	$    1,00,000.00
Indirect labor: fringe benefits	$       30,000.00
Fringe benefits for production supervisor	$       10,000.00
Total overtime premiums paid	$       55,000.00
Cost of idle time: production employees§	$       40,000.00
Total manufacturing overhead	$    5,37,000.00
Total Coversion cost
Direct labor: wages	$    4,70,000.00
Direct labor: fringe benefits	$    1,14,000.00
Total manufacturing overhead	$    5,37,000.00
Total Coversion cost	$ 11,21,000.00
Total Product cost
Total prime costs	$ 28,84,000.00
Total manufacturing overhead	$    5,37,000.00
Total Product cost	$ 34,21,000.00
total period cost
Advertising expense	$       99,000.00
Administrative costs	$    1,50,000.00
Rental of office space for sales personnel†	$       15,000.00
Sales commissions	$          5,000.00
Product promotion costs	$       10,000.00
total period cost	$    2,79,000.00

2 Part

Rental of office space for sales personnel is an opportunity cost because has to sacrifice the previous office space for sale personal so that office space can be used for storing raw-material