Product Costs Cost Item Direct Materials Direct Labor Manufacturing Overhead Per
ID: 2422589 • Letter: P
Question
Product Costs
Cost Item
Direct
Materials
Direct
Labor
Manufacturing
Overhead
Period
Costs
LINK TO TEXT
Lott Company specializes in manufacturing a unique model of bicycle helmet. The model is well accepted by consumers, and the company has enough orders to keep the factory production at 10,000 helmets per month (80% of its full capacity). Lott’s monthly manufacturing cost and other expense data are as follows.Rent on factory equipment $ 9,700 Insurance on factory building 2,440 Raw materials (plastics, polystyrene, etc.) 79,440 Utility costs for factory 980 Supplies for general office 370 Wages for assembly line workers 57,170 Depreciation on office equipment 810 Miscellaneous materials (glue, thread, etc.) 1,270 Factory manager’s salary 6,460 Property taxes on factory building 500 Advertising for helmets 14,390 Sales commissions 3,210 Depreciation on factory building 1,680
Explanation / Answer
Answer:
The cost incurred in relation to fabricate/create a product or rendering of services to a customer is called Product Cost. Product Costs include Direct Material, Direct Labour, Direct Expenses (Consumable production supplies) and factory overhead.
Period Cost is the cost incurred for a period. It does not vary with the output of production. It incur for a specified period and in totality. Like Advertising Expenses, Office Rent, Depreciation expenses etc.
Total Cost = $79,440 + $57,170 + $9,500 + $32,230 = $178,420
Production Cost Per Helmet (If total Cost i.e., Period Cost & Product Cost is considered) = $178,420 / 10,000 = $17.842
Production Cost Per Helmet (If only Product Cost is considered) = $79,440 + $57,170 + $9,580 = $146,190 / 10,000 = $14.6190
Production Cost Per Helmet
Product Cost Cost Item Direct Materials Direct Labor Manufacturing Overhead Period Cost Rent on factory equipment $9,700 Insurance on factory building $2,440 Raw materials $79,440 Utility costs for factory $980 Supplies for general office $370 Wages for assembly line workers $57,170 Depreciation on office equipment $810 Miscellaneous materials $1,270 Factory manager’s salary $6,460 Property taxes on factory building $500 Advertising for helmets $14,390 Sales commissions $3,210 Depreciation on factory building $1,680 $79,440 $57,170 $9,580 $32,230Related Questions
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