Question

The following cost data pertains to ABC Company for the month of December: Direct material used in production Depreciation for factory building Direct labor wages Cost of finished goods, inventory at year-end Indirect labor - wages Production supervisor's salary Product promotion costs Service department costs for manufacturing Sales commissions Administrative costs Rental of sales office space $ 210,000 11,500 58,000 11,500 17,000 5,400 9,900 10,000 500 15,000 1,500 a) b) c) d) e) Compute the total prime costs. Compute the total manufacturing overhead costs. Compute the total conversion costs. Compute the total product costs. Compute the total period costs.

Answer 1

a) Prime cost are those cost which are incurred towards direct material & labor and excludes any indirect cost including overhead and supervisor cost as well

Hence prime cost is 268,000 (210,000 (Direct Material)+58,000 (Direct labor))

b) Total Manufacturing Overhead cost :

It includes the costs incurred in the manufacturing facilities other than the costs of direct materials and direct labor

Hence Total Manufacturing overhead is 43,900 =(11,500(Depreciation on Factory Building)+17,000 (Indirect labor wages)+5,400 (Production supervisor salary)+ 10,000 (Service department cost for manufacturing)

c) Total Conversion Costs

Total Conversion Cost = Total manufacturing Overhead + Direct Labor cost

101,900(43,900+58,000)

d) Compute total Product Cost

Product Cost = Total Prime Cost + Total Manufacturing Overhead

311,900=268,000+43,900

e) Compute total period cost :

Period cost are those cost which cant be prepaid expense, part of inventory cost or part of fixed asset cost

26,900=9,900 (Production promotion cost)+500(Sales Commission)+15,000 (Administrative cost)+1,500 (Rental of sales office)