Question

A review of the accounting records of Perez Manufacturing indicated that the company incurred the following payroll costs during the month of March. Assume the company's financial statements are prepared in accordance with GAAP.

1. Salary of the company president—$32,700.

2. Salary of the vice president of manufacturing—$15,500.

3. Salary of the chief financial officer—$18,300.

4. Salary of the vice president of marketing—$14,900.

5. Salaries of middle managers (department heads, production supervisors) in manufacturing plant—$199,000.

6. Wages of production workers—$945,000.

7. Salaries of administrative personnel—$104,000.

8. Salaries of engineers and other personnel responsible for maintaining production equipment—$177,000.

9. Commissions paid to sales staff—$253,000.

Required

1. What amount of payroll cost would be classified as SG&A (selling, general, and administrative) expense?

2. Assuming that Perez made 3,700 units of product and sold 2,590 of them during the month of March, determine the amount of payroll cost that would be included in cost of goods sold.

Answer 1

1. Payroll costs that would be classified as selling, general, and administrative expense include the following:

   Salary of the company president	$32,700
   Salary of the chief financial officer	18,300
   Salary of the vice president of marketing	14,900
   Salaries of administrative personnel	104,000
   Commissions paid to sales staff	253,000
   Total	$422,900

2. Payroll costs that would be classified as product cost include the following:

   Salary of the vice president of manufacturing	$15,500
   Salary of middle managers in manufacturing plant	199,000
   Wages of production workers	945,000
   Salaries of engineers and maintenance crew	177,000
   Total	$1,336,500

   Since 2,590 units of 3,700 finished products were sold, 70% (i.e. 2,590 ÷ 3,700) of the product cost would be classified as cost of goods sold. Therefore, the payroll cost that would be included in cost of goods sold is determined as follows:

   $1,336,500 × 70% = $935,550