Product Costs Versus Period Costs (Chapter 12: Manufacturing Cost Accounting) 854-868

depreciation on delivery trucks and Sales Commissions Period costs are expensed in the period incurred and not matched with product revenue. Selling and administrative expenses (which include depreciation are period costs.

854. Happy Birds Wild Bird Feeders records depreciation on delivery trucks and pays for the following items: ✔ Wood to construct the feeders ✔ Nails and glue used in construction of the feeders ✔ Skilled workers to construct the feeders ✔ A supervisor for the factory ✔ Utilities for the factory ✔ Sales commissions ✔ Insurance on the factory ✔ Property taxes on the factory ✔ Which of the items recorded or paid is a period cost? Which of the items recorded or paid is a period cost?

$344,400 1. Product costs are all manufacturing costs used to make the product and fall into the broad categories of direct materials, direct labor, variable overhead, and fixed overhead. 2. The indirect materials used in the product are a variable overhead cost. The other product costs are materials used in products, labor costs of assembly line workers, factory supplies used, property taxes on the factory, and factory utilities. 6,400 +120,000+110,000+24,000 + 45,000 +39,000 = 344,400

855. Cloud Glasses Company sells glasses that protect the wearer from supposedly dangerous ultra -blue rays emitted by clouds. The company has the following information: ✔ Indirect materials used in products: $6,400 ✔ Depreciation on delivery equipment: $10,200 ✔ Gas and oil for delivery trucks: $2,200 ✔ President's salary: $92,000 ✔ Materials used in products: $120,000 ✔ Labor costs of assembly line workers: $110,000 ✔Factory supplies used: $24,000 ✔Advertising expense: $25,000 ✔ Property taxes on the factory: $45,000 ✔ Repairs on office equipment: $1,800 ✔ Factory utilities: $39,000 Determine the total amount of product costs.

$131,200 1. Period costs are expensed when incurred, not when the associated product is sold. Selling, general, and administrative expenses are the broad categories of period costs. 2. From the list, depreciation on delivery equipment, gas and oil for delivery trucks, the president's salary, advertising expense, and repairs on office equipment are period costs. 10,200+2,200+92,000+25,000+1,800 =131,200

856. Cloud Glasses Company sells glasses that protect the wearer from supposedly dangerous ultra -blue rays emitted by clouds. The company has the following information: ✔ Indirect materials used in products: $6,400 ✔ Depreciation on delivery equipment: $10,200 ✔ Gas and oil for delivery trucks: $2,200 ✔ President's salary: $92,000 ✔ Materials used in products: $120,000 ✔ Labor costs of assembly line workers: $110,000 ✔Factory supplies used: $24,000 ✔Advertising expense: $25,000 ✔ Property taxes on the factory: $45,000 ✔ Repairs on office equipment: $1,800 ✔ Factory utilities: $39,000 Determine the total amount of period costs

Factory workers, Factory manager 1. Product costs are all the costs associated with producing the product. Direct labor and overhead costs include wages paid to the employees that produce the products. 2. Those employees are the factory workers and the factory manager.

857. Terry Bears Co. paid wages to the following groups of employees: ✔ Factory workers ✔ Factory manager ✔ Chief executive officer ✔ Corporate attorney ✔ Salespeople ✔ Administrative support for executives ✔ Delivery drivers Identify the employees whose wages will be included in product costs.

Chief executive officer, Corporate attorney, Salespeople, Administrative support for executives, Delivery drivers

858. Terry Bears Co. paid wages to the following groups of employees: ✔ Factory workers ✔ Factory manager ✔ Chief executive officer ✔ Corporate attorney ✔ Salespeople ✔ Administrative support for executives ✔ Delivery drivers Identify the employees whose wages are period costs.

Wages paid to designers of the costumes, Fabric used in the costumes, Wages paid to sewing machine operators, Depreciation on sewing machines, Insurance on the factory building

859. Dragon Zombie Costume Manufacturer is trying to determine the product costs from this list of costs to manufacture costumes: ✔ Wages paid to designers of the costumes ✔ Fabric used in the costumes ✔ Wages paid to sewing machine operators ✔ Depreciation on sewing machines ✔ Commissions paid to salespeople ✔ Charges for cellphones issued to salespeople ✔ Depreciation on delivery vehicles ✔ Gas and maintenance on delivery vehicles ✔ Insurance on the factory building ✔ Insurance on the delivery vehicles ✔ Amounts paid to CPAs who do the accounting and taxes Of the listed costs, which are product costs?

Commissions paid to salespeople, Charges for cellphones issued to salespeople, Depreciation on delivery vehicles, Gas and maintenance on delivery vehicles, Insurance on the delivery vehicles, Amounts paid to CPAs who do the accounting and taxes

860. Dragon Zombie Costume Manufacturer is trying to determine the period costs from this list of costs to manufacture costumes. ✔ Wages paid to designers of the costumes ✔ Fabric used in the costumes ✔ Wages paid to sewing machine operators ✔ Depreciation on sewing machines ✔ Commissions paid to salespeople ✔ Charges for cellphones issued to salespeople ✔ Depreciation on delivery vehicles ✔ Gas and maintenance on delivery vehicles ✔ Insurance on the factory building ✔ Insurance on the delivery vehicles ✔Amounts paid to CPAs who do the accounting and taxes Of the listed costs, which are period costs?

direct material The ingredients become part of the product and are considered direct materials.

861. Which category of cost does the cost of the ingredients in a frozen pizza belong to?

direct labor The workers are directly involved with producing the trucks, so their wages are considered direct labor, a product cost.

862. Which category of cost do the wages of workers at a truck assembly plant belong to?

overhead Because the machines are directly involved in producing the product, the depreciation is a product cost. However, it isn't possible to separately identify the cost as direct labor or direct materials, so these costs are classified as overhead.

863. Jimmy Choo designs and sells luxury footwear. Which category of cost does the depreciation on the factory machines that produce the shoes belong to?

24,000+1,200+87,000+130+250+1,500 =114,080 The product costs are the direct materials, direct labor, and overhead necessary to build the lofts. 1. The carpenter's wages are direct labor. The wood, nails, and glue are direct materials. 2. The depreciation on the tools and on the costs associated with the truck are all overhead costs

864. Dorm Lofts Engineering has the following costs to produce and sell its product. The lofts are constructed on -site, and the carpenter uses a truck to get the materials to the dorm. ✔ CEO's salary: $27,000 ✔ Carpenter's wages: $24,000 ✔ Salesperson's wages: $13,000 ✔ Insurance on the truck: $1,200 ✔ Bank charges: $600 ✔ Wood, nails, and glue: $87,000 ✔ Depreciation on tools: $130 ✔ Depreciation on the truck: $250 ✔ Gas and maintenance for the truck: $1,500 ✔ Advertising: $80 ✔ Accounting services: $120 Determine the total product cost.

period cost The advertising cost is a selling expense, and selling expenses are period costs.

865. How would you categorize the cost of advertising this book?

Period costs are costs of doing business that aren't directly tied to production. For Dorm Lofts Engineering, the CEO's salary, the salesperson's wages, bank charges, advertising, and accounting services are the period costs. The costs associated with the truck are product costs because the truck is used in the production of the lofts. 27,000 + 13,000 + 600 + 80 + 120 = 40,800

866. Dorm Lofts Engineering has the following costs to produce and sell its product. The lofts are constructed on -site, and the carpenter uses a truck to get the materials to the dorm. ✔ CEO's salary: $27,000 ✔ Carpenter's wages: $24,000 ✔ Salesperson's wages: $13,000 ✔ Insurance on the truck: $1,200 ✔ Bank charges: $600 ✔ Wood, nails, and glue: $87,000 ✔ Depreciation on tools: $130 ✔ Depreciation on the truck: $250 ✔ Gas and maintenance for the truck: $1,500 ✔ Advertising: $80 ✔ Accounting services: $120 Determine the total period costs.

Direct materials: wood, nails, and glue Direct labor: carpenter's wages Overhead: depreciation on tools, insurance on the truck, depreciation on the truck, and gas and maintenance for the truck Period costs: CEO's salary, salesperson's wages, bank charges, advertising, and accounting services

867. Dorm Lofts Engineering has the following costs to produce and sell its product. The lofts are constructed on -site, and the carpenter uses a truck to get the materials to the dorm. ✔ CEO's salary: $27,000 ✔ Carpenter's wages: $24,000 ✔ Salesperson's wages: $13,000 ✔ Insurance on the truck: $1,200 ✔ Bank charges: $600 ✔ Wood, nails, and glue: $87,000 ✔ Depreciation on tools: $130 ✔ Depreciation on the truck: $250 ✔ Gas and maintenance for the truck: $1,500 ✔ Advertising: $80 ✔ Accounting services: $120 Categorize the costs as direct materials, direct labor, overhead, or period costs.

overhead Utility costs are costs required to run a factory but are not costs that can be directly traced to the manufactured product. Instead, these costs are considered overhead

868. How would you categorize the cost of heating and cooling a factory that produces computers?