EXERCISE 1-2
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
(b)
(c)
(c)
(c)
(a)
(b)
(c)
(c)
(c)
(a)
Direct labor.*
Manufacturing overhead.
Manufacturing overhead.
Manufacturing overhead.
Direct materials.
Direct labor.
Manufacturing overhead.
Manufacturing overhead.
Manufacturing overhead.
Direct materials.
*or sometimes (c), depending on the circumstances
EXERCISE 1-3
(a) Bicycle components .............. DM Advertising expense ...............Period
Depreciation on plant........... MOH Property taxes on plant ............ MOH
Property taxes on store .... Period Delivery expense ....................Period
Labor costs of assembly
Sales commissions.................Period
line workers ........................... DL Salaries paid to sales clerks ... Period
Factory supplies used ......... MOH
(b) Product costs are recorded as a part of the cost of inventory because they
are an integral part of the cost of producing the bicycles. Product costs are not
expensed until the goods are sold. Period costs are recognized as an
expense when incurred.
EXERCISE 1-4
(a) Factory utilities .......................................................................
Depreciation on factory equipment .......................................
Indirect factory labor ..............................................................
Indirect materials ....................................................................
Factory manager’s salary .......................................................
Property taxes on factory building ........................................
Factory repairs ........................................................................
Manufacturing overhead ........................................................
$ 15,500
12,650
48,900
80,800
8,000
2,500
2,000
$170,350
(b) Direct materials .......................................................................
Direct labor ..............................................................................
Manufacturing overhead ........................................................
Product costs ..........................................................................
$137,600
69,100
170,350
$377,050
(c) Depreciation on delivery trucks ............................................
Sales salaries .........................................................................
Repairs to office equipment ..................................................
Advertising .............................................................................
Office supplies used ..............................................................
Period costs ............................................................................
$
3,800
46,400
1,300
15,000
2,640
$ 69,140
EXERCISE 1-5
1.
2.
(c)
(c)
3.
4.
(a)
(c)
5.
6.
(b)*
(d)
7.
8.
(a)
(b)
9.
10.
*or sometimes (c), depending on the circumstances.
EXERCISE 1-6
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
(b)
(c)
(a)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
EXERCISE 1-7
(a)
(b)
Delivery service (product) costs:
Indirect materials
Depreciation on delivery equipment
Dispatcher’s salary
Gas and oil for delivery trucks
Drivers’ salaries
Delivery equipment repairs
Total
$ 6,400
11,200
5,000
2,200
16,000
300
$41,100
Period costs:
Property taxes on office building
CEO’s salary
Advertising
Office supplies
Office utilities
Repairs on office equipment
Total
$ 870
12,000
4,600
650
990
180
$19,290
(c)
(c)
P1-2B Elliott Company, a manufacturer of tennis rackets, started production in November 2017. For the
preceding 5 years, Elliott had been a retailer of sports equipment. After a thorough survey of tennis racket
markets, Elliott decided to turn its retail store into a tennis racket factory. Raw materials cost for a tennis racket
will total $23 per racket. Workers on the production lines are paid on average $15 per hour. A racket usually
takes 2 hours to complete. In addition, the rent on the equipment used to produce rackets amounts to $1,300
per month. Indirect materials cost $3 per racket. A supervisor was hired to oversee production; her monthly
salary is $3,500. Janitorial costs are $1,400 monthly. Advertising costs for the rackets will be $8,000 per
month. The factory building depreciation expense is $8,400 per year. Property taxes on the factory building will
be $9,600 per year. Instructions
(a) Prepare an answer sheet with the following column headings. Product Costs Cost Direct Direct
Manufacturing Period Item Materials Labor Overhead Costs Assuming that Elliott manufactures, on average,
2,500 tennis rackets per month, enter each cost item on your answer sheet, placing the dollar amount per
month under the appropriate headings. Total the dollar amounts in each of the columns.
(b) Compute the cost to produce one racket.
(a)
Product Costs
Cost Item
Raw materials (1)
Direct
Direct
Manufacturing
Period
Materials
Labor
Overhead
Costs
$57,500
Wages for workers (2)
$75,000
Rent on equipment
$ 1,300
Indirect materials (3)
7,500
Factory supervisor’s salary
3,500
Janitorial costs
1,400
Advertising
$8,000
Depreciation on factory building (4)
Property taxes on factory building (5)
(1)
$23 X 2,500 = 57,500.
(2)
$15 X 2 X 2,500 = $75,000.
(3)
$3 X 2,500 = $7,500.
(4)
$8,400/12 = $700.
(5)
$9,600/12 = $800.
(b)
Total production costs
700
000,000
000,000
800
00,000
$57,500
$75,000
$15,200
$8,000
Direct materials
$ 57,500
Direct labor
75,000
Manufacturing overhead
15,200
Total production cost
Production cost per racket = $147,700/2,500 = $59.08
$147,700