Question

Exercise 10-6 Identifying product versus SG&A costs LO 10-2, 10-3 A review of the accounting records of Fanning 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-$32,400. 2. Salary of the vice president of manufacturing-$15,900. 3. Salary of the chief financial officer-$18,000. 4. Salary of the vice president of marketing-$15,400. 5. Salaries of middle managers (department heads, production supervisors) in manufacturing plant-$197,000. 6. Wages of production workers-$933,000 7. Salaries of administrative secretaries-$109,000. 8. Salaries of engineers and other personnel respons ible for maintaining production equipment-$178,000 9. Commissions paid to sales staff-$251,000. pok int ences Required a. What amount of payroll cost would be classified as SG&A expense? b. Assuming that Fanning made 3,300 units of product and sold 2,475 of them during the month of March, determine the amount of payroll cost that would be included in cost of goods sold. (Do not round intermediate calculations.) Payroll cost to be included in SG&A cost b. Payroll cost to be included in cost of goods sold a

Answer 1

a) SG&A expenses are those expenses that are related to selling, general and administrative activities of the firm. In other words, costs incurred at the production plant or during the production activities shall not be considered as SG&A expenses. That is, 1) Salary of the company president $32,400 3) Salary of the chief financial officer $18,000 4) Salary of the vice president of marketing $15,400 7) Salaries of administrative secretaries $109,000 9) Commission paid to sales staf $251,000 Payroll cost classified as SG&A expense $425,800 b) Product costs are those costs that are related to carrying out manufacturing process and such costs shall be allocated to number of units sold to calculate cost of goods sold. So, 2) Salary of the vice president of manufacturing $15,900 5) Salary of middle managers in manufacturing plant $197,000 6) Wages of production workers $933,000 8) Salaries engineers & others for production equip. $178,000 Total product costs incurred $1,323,900 Number of units produced 3,300 Product cost per unit $401.182 ($1323900 / 3300 units] Number of units sold 2,475 Cost of goods sold $992,925 ($401.182 x 2475 units]