Question

Classifying Costs

The following is a manufacturing cost report of Marching Ants Inc.

Marching Ants Inc.
Manufacturing Costs
For the Quarter Ended June 30

Materials used in production (including

$44,100 of indirect materials)$476,600

Direct labor (including $66,200 maintenance salaries)441,300

Factory overhead:

Supervisor salaries—plant406,000

Heat, light, and power—plant110,300

Sales salaries273,600

Promotional expenses247,100

Insurance and property taxes—plant119,200

Insurance and property taxes—corporate offices172,100

Depreciation—plant and equipment97,100

Depreciation—corporate offices70,600

Total$2,413,900

a. 1. Select the correct sentence for errors in the preceding report.

1. The maintenance salaries of $66,200 and indirect materials of $44,100 should be included as factory overhead.

2. The indirect materials of $44,100 should be included as factory overhead.

3. The maintenance salaries of $66,200 should be included as factory overhead.

4. Half of the maintenance salaries of $66,200 and indirect materials of $44,100 should be included as factory overhead.

a. 2. Select the correct sentence for errors in the preceding report.

1. Sales salaries, promotional expenses, corporate office insurance and property taxes, and corporate office depreciation should not be included in factory overhead.

2. Promotional expenses, corporate office insurance and property taxes, and corporate office depreciation should not be included in factory overhead.

3. Sales salaries, promotional expenses, corporate office insurance and property taxes should not be included in factory overhead.

4. Half of sales salaries, promotional expenses, corporate office insurance and property taxes, and corporate office depreciation should not be included in factory overhead.

b. Prepare a corrected report.

Marching Ants Inc.

Manufacturing Costs

For the Quarter Ended June 30

$

Factory overhead:

$

Total factory overhead

Total$

Answer 1

a.1

Correct Answer: 1. The maintenance salaries of $66,200 and indirect materials of $44,100 should be included as factory overhead.

Because these are indirect costs and are not directly attributable to production units/items. Only direct material and direct labor form part of the prime costs and these indirect costs are shown as factory overheads.

a.2

Correct Answer: 1. Sales salaries, promotional expenses, corporate office insurance and property taxes, and corporate office depreciation should not be included in factory overhead.

Because these are not factory costs.

b.

Marching Ants Inc.

Manufacturing Costs

For the Quarter Ended June 30

	$
Direct Material	432,500
Direct Labor	375,100
Prime Costs	807,600
Factory Overheads:
- Indirect Material	44,100
- Maintenance Salaries	66,200
- Supervisors salary - plant	406,000
- Heat, Light and power - plant	110,300
- Insurance and property taxes - plant	119,200
- Depreciation - Plant and Equipment	97,100
Total Factory Overheads	842,900
Total Manufacturing Costs	$ 1,650,500