Problem information Cost classification The following data are available for T-P

Question

Problem information

Cost classification
The following data are available for T-Pretzel Company for 2010:

Purchases of raw material $ 740,000
Direct material used 761,000
Raw materials, 12/31/10 77,000
Direct labor cost incurred 474,000
Indirect materials 35,000
Sales commissions 183,000
Depreciation on factory building 135,000
Indirect labor cost 145,000
Property taxes on factory 85,000
Income tax expense 20,000
Factory utilities 70,000
Rent expense – administrative offices 56,000

Production supervisor’s salary 50,000
Sales manager’s salary 60,000

Required:
Calculate the following:
a. Beginning Direct Materials Inventory
b. Total Manufacturing Overhead Costs
c. Total product costs
d. Period costs
e. Prime costs
f. Conversion costs

Explanation / Answer

a) Beginning direct materials + Purchases – Ending inventory = Cost of direct materials Begg. Direct materials + $740,000 - $77,000 = $761,000 Begg. Direct materials = $98,000 b) Total manufacturing overhead costs are obtained as Indirect material $35,000 Indirect labor $145,000 Property taxes on factory $85,000 Factory utilities $70,000 Rent expense $56,000 Depreciation on factory $135,000 building Sales commission $183,000 Total manufacturing Overhead cost $709,000 c)Total product costs include Direct materials + Direct labor + Manufacturing overhead costs But Manufacturing overhead = $709,000 - $127,000 = $582,000 Total product costs = $761,000 + $474,000 + $582,000 = $1,817,000 d)Prime cost is the sum of direct material cost and direct labor cost. Prime cost = $1,235,000 e)Conversion cost is the sum of direct labor cost and manufacturing overhead cost Conversion cost = $474,000 + $582,000 = $1,056,000

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