Question

The Norfolk Company reported the following information at the end of the current year:

Indirect labor	$40,000	Direct materials	$50,000
Selling expenses	$15,000	Sales revenue	$200,000
Rent on factory	$25,000	Factory utilities	$10,000
Depreciation on factory buildings and equipment	$10,000	Direct labor	$45,000
Administrative expenses	$30,000	Property taxes on factory	$5,000

Refer to the Norfolk Company, calculate:

1. Manufacturing Overhead cost.
2. Total manufacturing costs.
3. Prime costs.
4. Conversion costs.
5. Period costs.

Answer 1

a) Manufaturing overhead include all costs incurred in factory that are indirectly included in the product cost.

Manufacturing overhead cost will include the following:

Indirect labor $40,000

Rent on factory $25,000

Depreciation $10,000

Factory utilities $10,000

Property tax on factory $5,000

Manufacturing overheads $90,000

b) Total Manufacturing Cost

Direct Material $50,000

Direct Labor $45,000

Manufacturing Overheads $90,000

Total Manufacturing Cost $185,000

c) Prime cost include direct cost only.

Prime cost :

Direct Material $50,000

Direct Labor $45,000

Prime Cost $90,000

d) Conversion cost refers to the costs that are used to convert the raw material into finished goods.

It include direct labor and manufacturing overheads:

Direct Labor $45,000

Manufacturing Overheads $90,000

Conversion costs $135,000

e) Period costs are the costs that are not included in product cost, they are incurred after the production and includes selling expenses and administrative expenses of office etc., that does not contribute in the production of goods.

Period Costs:

Administrative Expenses $30,000

Selling Expenses $15,000

Period Costs $45,000