Use the following information for questions 2 and 3. The Casual Furniture Compan

Question

Use the following information for questions 2 and 3. The Casual Furniture Company manufactures patio funiture. During the month of April, the Company incurred the following costs. Lumber Paint Glue (indirect material) Wages-Assembly personnel Wages-Plant supervisor Janitorial wages (in the plant) Sales commissions Administrative staff salaries Depreciation-factory equipment Depreciation-sales office equipment Utilities, insurance, property taxes-factory Utilities, insurance, property taxes-sales office Advertising $25,000 5,000 500 20,000 3,500 2,000 10,000 4,000 3,000 1,000 6,000 2,000 TOTAL COSTS 2. Casual Furniture Company's period costs are: A. $0. B. $7,000. C. $25,000. D. $30,500. E. $90,000. 3. Casual Furniture Company's conversion costs are: A. $34,500. B. $29,500. C. $15,000. D. $20,000. E. $35,000.

Explanation / Answer

Answer 1

Period cost are linked with a period and can’t be capitalised with inventory or prepaid expense. These are generally  the selling and administrative expenses.

So correct answer is $25000. ( sales commission $10000 + admin staff salaries $4000 + Depreciation sales equipment $1000 + Utilities... sales office $2000 + advertising $8000)

Answer 2

Conversion cost means cost incurred to convert the raw materials to finish product, include direct labour and factory overhead.

So correct answer is $35000 ( Glue $500 + Wages assembly personnel $20000 + wages plant supervisor $3500 + Janitorial wages $2000 + Depreciation Factory $3000 + utilities factory $6000)

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