Question

Knight Company reports the following costs and expenses in May.

Factory utilities		$16,942		Direct labor		$71,743
Depreciation on factory equipment		13,387		Sales salaries		47,310
Depreciation on delivery trucks		4,546		Property taxes on factory building		3,252
Indirect factory labor		49,656		Repairs to office equipment		2,179
Indirect materials		84,468		Factory repairs		2,465
Direct materials used		142,667		Advertising		15,712
Factory manager%u2019s salary		8,285		Office supplies used		3,523

From the information, determine the total amount of:

(a)		Manufacturing overhead		$
(b)		Product costs		$
(c)		Period costs		$

Answer 1

Concepts and reason

Direct cost: Direct cost is any cost that is directly related to manufacturing a product or rendering a service. The direct cost may be classified into direct material cost, direct labor cost, and direct expenses.

Direct material cost: Direct material cost is the cost related to the purchase of the raw materials that are directly related to the production of the goods. It includes opening stock of materials, purchases, cost of purchases, and deductions related to the closing stock of materials.

Direct labor cost: It refers to the cost of providing wages to the workers who are directly associated with the production of goods or services rendered to the customers. The cost of direct labor includes the wages, payroll taxes, and all the benefits sponsored by a manufacturer.

Depreciation: Depreciation is the process of reducing the value of the assets. It is a non-cash expense of a company. The value of assets is reduced due to the wear and tear caused for assets by its usage.

Indirect costs: They are the costs that are not directly related to a particular asset. They are the costs that are normally referred to as overhead expenses. The indirect cost is applied on the basis of direct cost. For example: labor hours of employees involved in the construction of asset.

Fundamentals

Manufacturing overhead costs: Costs, which do not relate directly with the manufacturing of products, are referred to as manufacturing overhead costs or indirect costs. Manufacturing overhead cost per unit is the cost of manufacturing overhead incurred to produce one unit of product.

Product cost: This is the total cost incurred to manufacture a product. Product costs include direct materials cost, direct labor costs, and manufacturing factory overhead costs.

Period cost: Period costs are the costs that are associated with the operational activities. It includes salaries or remuneration, selling expense, advertising expenses, packaging, and distribution expenses.

a)

Calculate the manufacturing overhead:

Therefore, the manufacturing overhead is $178,005.

b)

Calculate the product cost:

Therefore, the product cost is $392,415.

c)

Calculate the period cost:

Therefore, the period cost is $73,270.

Ans: Part a

The manufacturing overhead is $178,005.

Part b

The product cost is $392,415.

Part c

The period cost is $73,270.