A partial listing of costs incurred at Hammonton Home Renewal Inc. during June i

ID: 2493367 • Letter: A

Question

A partial listing of costs incurred at Hammonton Home Renewal Inc. during June is given in the Excel template file.

Put the dollar amount for each cost item in the appropriate column(s) for all cost items.

Identify if each cost is a Product or Period cost (enter the amount). Also identify if the cost qualifies as a Prime or Conversion cost (enter the amount).

Provide totals for each column. A cost may be prime or conversion, or both, or neither—you make the determination. It is obviously possible that a cost may be in more than one column category.

Explanation / Answer

Product Cost- The cost which can be apportioned to the product is known as product cost. It is variable cost. Cost of raw material. Wages for factory worker, depreciation on machinery instated in factory production overhead are the examples of product cost.

Period Cost- The cost which cannot be apportioned to the product instead charged as expense known as period cost. It belongs to a particular period. It is a fixed cost. Salary of office personal, rent, depreciation of equipment used in office are the examples of period cost.

Prime Cost- Prime cost is the direct product cost. It includes direct material and direct labor.. These costs can be directly apportioned to finished goods.

Prime Cost- Direct material + Direct labor

Conversion Cost- Conversion cost includes direct labor and manufacturing overhead or factory overhead.

Conversion Cost = Direct Labor + Factory Overhead

Factory overhead includes indirect material, indirect labor and other expenses need to incur in production process.

Cost Item

Amount

Product

Period

Prime

Conversion

General and Administration Salaries

108,800

Market Research Cost

39,885

Depreciation of Administrative Equipment

12,685

Depreciation of Factory Equipment

20,470

Direct Labor

165,700

165,700 *

Direct Materials

434,900

Indirect Labor

72,500

Sales Commission

108,900

Utilities, production facilities

41,630

Total Amount

1,005,470

735,200

270,270

600,600

134,600

Note- Direct labor can also be considered in conversion cost