Exercise 1-8 Product Costs and Period Costs; Variable and Fixed Costs [LO1-3, LO
ID: 2591926 • Letter: E
Question
Exercise 1-8 Product Costs and Period Costs; Variable and Fixed Costs [LO1-3, LO1-4] Kubin Company's relevant range of production is 18,000 to 22,000 units. When it produces and sells 20,000 units, its average costs per unit are as follows: Direct materials Direct labor Varlable manufacturing overhead rixed sanufacturing overhead Fixed selling expense Fixed administrative expense Sales commissions Varlable administrative expense Average Cost per Unit 7.80 5 4.00 s 1.50 5.00 5 3.50 S 2.50 s 1.e0 $ e.s0 Required: 1. For financial accounting purposes, what is the total amount of product costs incurred to make 20,000 units? 2. For financial accounting purposes, what is the total amount of period costs incurred to sell 20,000 units? 3. For financial accounting purposes, what is the total amount of product costs incurred to make 22,000 units? 4. For financial accounting purposes, what is the total amount of period costs incurred to sell 18,000 units? Total amount of product costs 2. Total amount of period costs incurred 3. Total amount of product costs 4. Total amount of period costsExplanation / Answer
Kubin Company
Product costs = variable costs + period costs
Variable costs –
Direct materials $7.00
Direct labor $4.00
Variable manufacturing overhead $1.50
Variable costs of making $12.50
Variable product costs for 20,000 units = $12.50 x 20,000 = $250,000
Period costs –
Fixed manufacturing overhead = $5.00 x 20,000 = $100,000
Hence, total amount of product costs incurred to make 20,000 units = $250,000 + $100,000 = $350,000
Period costs are non-manufacturing costs.
Period costs incurred to sell 20,000 units –
Variable costs –
Sales commission $1.00
Variable administrative expense $0.50
Total variable cost to sell $1.50
Variable cost to sell 20,000 units $1.50 x 20,000 = $30,000
Fixed selling expense = $3.50 x 20,000 = $70,000
Fixed administrative expense = $2.50 x 20,000 = $50,000
Total period costs to sell 20,000 units= $30,000 + $70,000 + $50,000 = $150,000
Product costs to make 22,000 units = variable cost + Fixed cost
-Variable costs
Direct materials $7.00
Direct labor $4.00
Variable manufacturing overhead $1.50
Variable costs of producing one unit $12.50
Total variable cost to produce 22,000 units = $12.50 x 22,000 = $275,000
Fixed manufacturing overhead = $100,000
Total amount of product costs incurred to make 22,000 units = $275,000 + $100,000 = $375,000
Hence, total amount of product costs incurred to make 22,000 units = $375,000
Note: Since the given relevant range of production is 18,000 units – 22,000 units, the fixed manufacturing overhead costs remain constant for any production activity in this range. Hence, fixed manufacturing overhead is $100,000 for production level of 18,000 units, 19,000 units, 20,000 units, 21,000 units and 22,000 units.
Period costs are non-manufacturing costs.
Period costs to sell = variable selling and administrative + fixed selling and administrative costs
Variable costs –
Sales commission $1.00
Variable administrative expense $0.50
Total variable cost to sell $1.50
Total variable costs to sell 18,000 units = $1.50 x 18,000 = $27,000
Fixed selling expense = $70,000
Fixed administrative expense = $50,000
Total period costs = $27,000 + $70,000 + $50,000 = $147,000
Hence, total period costs incurred to sell 18,000 units = $147,000
Note: Since the given relevant range of production is 18,000 units – 22,000 units, the fixed selling and administrative costs remain constant for any sales activity in this range. Hence, the fixed selling and administrative costs for production level of 18,000 units, 19,000 units, 20,000 units, 21,000 units and 22,000 units is $120,000 ($70,000 + $50,000).
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