The following cost data for the year just ended pertain to Sentiments, Inc., a greeting card manufacturer: Direct material.................................................................................................... $2,100,000 Advertising expense................................................................................................. 99,000 Depreciation on factory building...................................................................... 115,000 Direct labor: wages................................................................................................. 485,000 Cost of finished goods inventory at year-end............................................. 115,000 Indirect labor: wages.............................................................................................. 140,000 Production supervisor’s salary.............................................................................. 45,000 Service department costs*................................................................................... 100,000 Direct labor: fringe benefits................................................................................... 95,000 Indirect labor: fringe benefits............................................................................... 30,000 Fringe benefits for production supervisor.......................................................... 9,000 Total overtime premiums paid............................................................................. 55,000 Cost of idle time: production employees§....................................................... 40,000 Administrative costs............................................................................................... 150,000 Rental of office space for sales personnel†..................................................... 15,000 Sales commissions....................................................................................................... 5,000 Product promotion costs........................................................................................ 10,000 *All services are provided to manufacturing departments. §Cost of idle time is an overhead item; it is not included in the direct-labor wages given above. †The rental of sales space was made necessary when the sales offices were converted to storage space for raw material. Required: 1. Compute each of the following costs for the year just ended: (a) total prime costs, (b) total manufacturing overhead costs, (c) total conversion costs, (d) total product costs, and (e) total period costs. 2. One of the costs listed above is an opportunity cost. Identify this cost, and explain why it is an opportunity cost.
Problem 2-42 Cost Terminology
Clue: 1(a). Total prime costs:$2,680,000
1(d). Manufacturing
The following cost data for the year just ended pertain to Sentiments, Inc., a greeting card manufacturer:
Direct material.................................................................................................... $2,100,000
Advertising expense................................................................................................. 99,000
Depreciation on factory building...................................................................... 115,000
Direct labor: wages................................................................................................. 485,000
Cost of finished goods inventory at year-end............................................. 115,000
Indirect labor: wages.............................................................................................. 140,000
Production supervisor’s salary.............................................................................. 45,000
Service department costs*................................................................................... 100,000
Direct labor:
Indirect labor: fringe benefits............................................................................... 30,000
Fringe benefits for production supervisor.......................................................... 9,000
Total overtime premiums paid............................................................................. 55,000
Cost of idle time: production employees§....................................................... 40,000
Administrative costs............................................................................................... 150,000
Rental of office space for sales personnel†..................................................... 15,000
Sales commissions....................................................................................................... 5,000
Product promotion costs........................................................................................ 10,000
*All services are provided to manufacturing departments.
§Cost of idle time is an overhead item; it is not included in the direct-labor wages given above.
†The rental of sales space was made necessary when the sales offices were converted to storage space for raw material.
Required:
1. Compute each of the following costs for the year just ended: (a) total prime costs, (b) total
2. One of the costs listed above is an opportunity cost. Identify this cost, and explain why it is an opportunity cost.
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The product cost
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