Question

The following cost data for the year just ended pertain to Sentiments, Inc., a greeting card manufacturer:

Direct material		$2,100,000
Advertising expense		97,000
Depreciation on factory building		117,000
Direct labor: wages		545,000
Cost of finished goods inventory at year-end		115,000
Indirect labor: wages		140,000
Production supervisor’s salary		47,000
Service department costs*		100,000
Direct labor: fringe benefits		94,000
Indirect labor: fringe benefits		32,000
Fringe benefits for production supervisor		10,000
Total overtime premiums paid		55,000
Cost of idle time: production employees§		40,000
Administrative costs		150,000
Rental of office space for sales personnel†		15,000
Sales commissions		4,000
Product promotion costs		10,000

*All services are provided to manufacturing departments.

§Cost of idle time is an overhead item; it is not included in the direct-labor wages given above.

†The rental of sales space was made necessary when the sales offices were converted to storage space for raw material.

Required:
1. Compute each of the following costs for the year just ended:

	a. Total prime costs b. Total manufacturing overhead costs c. Total conversion costs d. Total product costs e. Total period costs $276,000

Answer 1

a.	Total Prime cost =Direct Materials + Direct Labor
	Direct Material	$2,100,000
	Direct labor: wages	545,000
	Direct labor: Fringe benefits	94,000
	Total Prime cost	$2,739,000
b	Total Manufacturing Overhead Cost =Indirect material + Indirect labor + Other costs
	Depreciation on factory building	$117,000
	Indirect labor: wages	140,000
	Production supervisor’s salary	47,000
	Service department costs*	100,000
	Indirect labor: fringe benefits	32,000
	Fringe benefits for production supervisor	10,000
	Total overtime premiums paid	55,000
	Cost of idle time: production employees	40,000
	Total Manufacturing Overhead Cost	$541,000
c	Total Conversion cost =Direct labor + Total Manufacturing Overhead Cost
	Direct labor: wages	$545,000
	Direct labor: Fringe benefits	94,000
	Total Manufacturing Overhead Cost	541,000
	Total Conversion cost	$1,180,000
d	Total Products cost =Total Prime cost + Total Manufacturing Overhead Cost
	Total Prime cost	$2,739,000
	Total Manufacturing Overhead Cost	541,000
	Total Products cost	$3,280,000
e	Total period cost =Expenses during the time period in which they occurred
	Advertising expense	$97,000
	Administrative costs	150,000
	Rental of office space for sales personnel	15,000
	Sales commissions	4,000
	Product promotion costs	10,000
	Total period cost	$276,000