Question

QUESTION 1.

The Interiors Company located in Dominica, manufactures executive desks. Selected costs associated with the manufacture of the executive desks and the general operations of the company are given below:

a)    Wood used in the manufacture of the executive desks, at a cost of $500 per desk.

b)    The executive desks are assembled by workers, at a cost of $100 per desk.

c)    Workers assembling the executive desks are supervised by a factory supervisor who     is paid $75,000 per year.

d)    Electrical cost of $50 per machine-hour are incurred in the factory in the manufacture of the executive desks (five machine hours are required to produce a desk).

e)    The depreciation cost of the machines used in the manufacture of the executive desks totals $5,000 per year.

f)     The salary of the president of the Company is $250,000 per year.

g)    The Company spends $100,000 per year to advertise its products.

h)    Salespersons are paid a commission of $80 for each desk sold.


Questions:

1. Identify the variable costs in the case above.

2. Identify the Fixed costs in the case above.

3. In your own words, explain the difference between product and period cost.

4. Identify the Period costs in the case above.

5. Identify the Product cost in the case above.

6. In your own words, explain the difference between direct and indirect cost.

7. Identify the direct cost in the case above.

8. Identify the indirect cost in the case above

Answer 1

Requirement 1 Wood used in desks 500 $ Assembly cost 100 250 (50*5) Electrical cost $ Sales Commissions 80 $ Total Variable costs per desk 930 Requirement 2 $ Factory Supervisor 75,000 Machine Depreciation $ 5,000 President's Salary $ 2,50,000 Advertising costs $ 1,00,000 Total Fixed costs per year $4,30,000 Requirement 3 Product costs are those costs that are associated with manufacture or sale of products or services. Period costs are those costs that are associated with a particular period. Requirement 4 Wood used in desks 500 Assembly cost 100 250 (50*5) $ Electrical cost $ Sales Commissions 80 Total Product costs per desk 930

Requirement 5 $ Factory Supervisor 75,000 Machine Depreciation $ 5,000 President's Salary $ 2,50,000 Advertising costs $ 1,00,000 Total Period costs 4,30,000 Requirement 6 Direct costs are those costs that are directly associated with manufacture of products or services. Indirect costs are those costs that are not directly associated with manufacture of any product. Requirement 7 Wood used in desks 500 $ Assembly cost 100 Total Direct costs per desk 930 Requirement 8 Indirect costs $ Electrical cost 250 per desk $ Sales Commissions 80 per desk Factory Supervisor 75,000 per year Machine Depreciation $ 5,000 per year President's Salary $ 2,50,000 per year Advertising costs 1,00,000 per year