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Chapter 16: 14RQ (page 884)
What are product costs?
The product cost is the cost of purchasing or producing goods.
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Computing cost of goods sold, manufacturing company
Use the following information to calculate the cost of goods sold for The Ellis Company for the month of June:
Finished Goods Inventory:
Beginning Balance $ 30,000
Ending Balance 10,000
Cost of Goods Manufactured 165,000
List six differences between financial accounting and managerial accounting.
Classifying costs Wheels, Inc. manufactures wheels for bicycles, tricycles, and scooters. For each cost given below, determine if the cost is a product cost or a period cost. If the cost is a product cost, further determine if the cost is direct materials (DM), direct labor (DL), or manufacturing overhead (MOH) and then determine if the product cost is a prime cost, conversion cost, or both. If the cost is a period cost, further determine if the cost is a selling expense or administrative expense (Admin). Cost (a) is answered as a guide
Cost Product Period
DM DL MOH Prime Conversion Selling Admin.
a. Metal used for rims
b. Sales salaries
c. Rent on factory
d. Wages of assembly workers
e. Salary of production supervisor
f. Depreciation on office equipment
g. Salary of CEO
h. Delivery expense
Making ethical decisions
Sue Peters is the controller at Vroom, a car dealership. Dale Miller recently has been hired as the bookkeeper. Dale wanted to attend a class in Excel spreadsheets, so Sue temporarily took over Dale鈥檚 duties, including overseeing a fund used for gas purchases before test drives. Sue found a shortage in the fund and confronted Dale when he returned to work. Dale admitted that he occasionally uses the fund to pay for his own gas. Sue estimated the shortage at $450.
Requirements 2. Would you change your answer if Sue Peters was the one recently hired as controller and Dale Miller was a well-liked, long time employee who indicated he always eventually repaid the fund?
Classifying period costs and product costs
Langley, Inc. is the manufacturer of lawn care equipment. The company incurs the following costs while manufacturing edgers:
鈥� Handle and shaft of edger
鈥� Motor of edger
鈥� Factory labor for workers assembling edgers
鈥� Lubricant used on bearings in the edger (not traced to the product)
鈥� Glue to hold the housing together
鈥� Plant janitorial wages
鈥� Depreciation on factory equipment
鈥� Rent on plant
鈥� Sales commissions
鈥� Administrative salaries
鈥� Plant utilities
鈥� Shipping costs to deliver finished edgers to customers
Requirements
1. Describe the difference between period costs and product costs.
2. Classify Langley鈥檚 costs as period costs or product costs. If the costs are product costs, further classify them as direct materials, direct labor, or manufacturing overhead.
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