Chapter 14, Problem 2PSA

1.

To determine

Whether the cost is period cost or product cost.

Explanation of Solution

Advertisement Expense

$28,750 is the period cost.

Period cost is the cost which is not related to the manufacturing of the product. Advertisement expense is not related to the manufacturing of the product. It is related to the administration and selling department. So, it is the period cost

Depreciation Expense-Office Equipment

$7,250 is the period cost.

Period cost is the cost which is not related to the manufacturing of the product. Depreciation expense-Office equipment is not related to the manufacturing of the product. It is related to the administration and selling department. So, it is the period cost

Depreciation Expense-Selling Equipment

$8,600 is the period cost.

Period cost is the cost which is not related to the manufacturing of the product. Depreciation expense-Equipment equipment is not related to the manufacturing of the product. It is related to the administration and selling department. So, it is the period cost

Depreciation Expense-Factory Equipment

$33,550 is the product cost.

Product cost is that cost which is directly related to the manufacturing the product. Here, Depreciation expense-Factory equipment is related to the manufacturing of the product. So, it will be product cost.

Factory Supervision

$102,000 is the product cost.

Product cost is that cost which is directly related to the manufacturing the product. Here, Factory supervision is related to the manufacturing of the product. So, it will be product cost.

Factory Supplies Used

$7,350 is the product cost.

Product cost is that cost which is directly related to the manufacturing the product. Here, Factory supplies used is related to the manufacturing of the product. So, it will be product cost.

Factory Utilities

$33,000 is the product cost.

Product cost is that cost which is directly related to the manufacturing the product. Here, Factory utilities are related to the manufacturing of the product. So, it will be product cost.

Direct Labor

$675,480 is product cost.

Product cost is that cost which is directly or indirectly related to the manufacturing the product. Here, direct labor is related to the manufacturing of the product. So, it will be product cost.

Indirect Labor

$56,875 is product cost.

Product cost is that cost which is directly or indirectly related to the manufacturing the product. Here, indirect labor is related to the manufacturing of the product. So, it will be product cost.

Miscellaneous Production Costs

$8,425 is product cost.

Product cost is that cost which is directly or indirectly related to the manufacturing the product. Here, miscellaneous production costs are related to the manufacturing of the product. So, it will be product cost.

Office Salaries Expense

$63,000 is the period cost.

Period cost is the cost which is not related to the manufacturing of the product. Office Salaries Expense is not related to the manufacturing of the product. It is related to the administration and selling department. So, it is the period cost

Raw Material Purchases:

$925,000 is the product cost.

Product cost is that cost which is directly or indirectly related to the manufacturing the product. Here, raw material Purchases are related to the manufacturing of the product. So, it will be product cost.

Rent Expense-Office Space:

$22,000 is the period cast.

Period cost is the cost which is not related to the manufacturing of the product. Rent expense-office space is not related to the manufacturing of the product. It is related to the administration and selling department. So, it is the period cost

Rent Expense-Selling Space:

$26,100 is the period cost.

Period cost is the cost which is not related to the manufacturing of the product. Rent expense-selling space is not related to the manufacturing of the product. It is related to the administration and selling department. So, it is the period cost

Rent Expense-Factory Building:

$76,800 is the product cost.

Product cost is that cost which is directly or indirectly related to the manufacturing the product. Here, rent expense-Factory Building is related to the manufacturing of the product. So, it will be product cost

Maintenance Expense- Factory Equipment:

$35,400 is the product cost.

Product cost is that cost which is directly or indirectly related to the manufacturing the product. Here, Maintenance expense- Factory equipment is related to the manufacturing of the product. So, it will be product cost

Sales Salaries Expense:

$392,560 is the period cost.

Period cost is the cost which is not related to the manufacturing of the product. Sales salaries expense are not related to the manufacturing of the product. It is related to the administration and selling department. So, it is the period cost

2.

To determine

Nature of overhead

Explanation of Solution

Depreciation Expense-Factory Equipment

Depreciation expense-Factory equipment is the factory overhead because this depreciation expense is related to the factory equipment. All the expense related to the factory comes under the factory overhead.

Factory Supervision

Factory supervision is the factory overhead because this factory supervision expense is related to the factory supervision. All the expense related to the factory comes under the factory overhead.

Factory Supplies Used

Factory supplies used is the factory overhead because this factory supplies expense is related to the factory. All the expense related to the factory comes under the factory overhead.

Factory Utilities

Factory utilities are the factory overhead because this factory utilities expense is related to factory. All the expense related to the factory comes under the factory overhead.

Direct Labor

Direct labor comes under the direct labor head because labor is directly is involved in the manufacturing the product.

Indirect Labor:

Indirect labor is also used in the manufacturing the product but they cannot be identified individually with output. So, it is considered as the factory expense and comes under the head of the factory overhead.

Miscellaneous Production Costs

Miscellaneous production costs are the factory overhead because this miscellaneous production cost is related to the factory. All the expense related to the factory comes under the factory overhead.

Raw Material Purchases:

Raw material purchased is directly used in the production of the product. So, raw material purchased comes under the head of the direct material.

Rent Expense-Factory Building:

Rent expense-factory building is the factory overhead because this rent expense-factory building is related to the factory. All the expense related to the factory comes under the factory overhead.

3.

To determine

Nature of expense.

Explanation of Solution

Advertisement Expense:

Advertisement expense is related to make sale. So, it is the selling expense.

Depreciation Expense-Office Equipment:

Depreciation on office equipment is related to the administration and payment of these expenses comes under the head of the general and administrative expenses.

Depreciation Expense-Selling Equipment:

Depreciation on the selling equipment is related to make sale the equipment. So, it will come under the head of the selling expense.

Office Salaries Expense:

Expense related to the office and administrative comes under the general and administration expenses. Office salaries are related to the administrative. So, office salaries expense will come under the head of general and administration expense.

Sales Salaries Expense:

These expenses related to make the sales. So, sales salaries expense will come under the head of the selling expense.

Rent Expense- Office Space:

Rent for office space is related to the administrative. So, rent expense for office space will come under the head of the general and administration expense.

Rent Expense- Selling Space:

Rent for selling space is related to make sale. So, rent expense for selling space will come under the head of the selling expenses.