Question

Production machines costs $ 6,000 $3,000 Marketing machines costs Administrative machines costs $1,500 firm uses the The expected useful life of all machines is five years, no salvage value, and the straight-line method. 2. On January 2, the firm purchased for cash raw materials at cost of $5,000. 3. On January 3, the following materials were issued for use: Production machines costs $ 2,000 Marketing machines costs $ 500 Administrative machines costs $250 4. On January 14, the company paid the payroll: Production machines costs $3,000 Marketing machines costs $2,000 Administrative machines costs $1,500 5. On January 18, the firm paid the following expenses: Production machines costs $500 Marketing machines costs $300 Administrative machines costs $200 6. Cash sales during January were $15,000. 7. A fire destroyed raw material of $100. 1. How much is the amount of cost in its broad definition?

Answer 1

	Amount of Cost
Depreciation expense	2100
Raw material used (2000+500+250)	2750
Payroll cost (3000+2000+1500)	6500
other expenses (500+300+200)	1000
Raw material destroyed by fire	100
Total cost	12450

working:

A)Depreciation expense= [cost-salvage value]/useful life

                              = [10500-0]/5

                               = 2100

where

Total cost= 6000+3000+1500 = 10500

B)Actual raw material used in production forms part of cost and not the amount of actual purchase.