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 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

PART1 MANUFACTURING OVERHEAD

PARTICULARS AMOUNT

INDIRECT LABOUR $40,000

RENT ON FACTORY $1,25,000

DEPRECIATION ON BUILDING AND EQUIPMENT $10,000

FACTORY UTILITIES $10.000

PROPERTY TAXES ON FACTORY $5000

MANUFACTURING OVERHEADS $ 1,90,000

\

PART 2 TOTAL MANUFACTURING COST

CALCULATION OF TOTAL MANUFACTURING COST = DIRECT MATERIAL + DIRECT LABOUR + MANUFACTURING OVERHEADS

DIRECT MATERIAL = $50000

DIRECT LABOUR =   $45,000

MANUFACTURING OVERHEADS = $1,90,000 (AS CALCULATED IN ABOVE PART)

TOTAL MANUFACTURING COST = $2,85,000

PART 3 PRIME COST

PRIME COST Prime costs are all of the costs that are directly attributed to the production of each product. Prime costs are direct costs, meaning they include the costs of direct materials and direct labor involved in manufacturing an item.

FORMULA = DIRECT MATERIAL + DIRECT LABOUR

CALCULATION OF PRIME COST

PARTICULARS AMOUNT

DIRECT MATERIAL $50,000

DIRECT LABOUR $45,000  

TOTAL PRIME COST $95,000

  

PART 4 CONVERSION COST

FORMULA = DIRECT LABOUR + MAUFACTURING OVERHEAD

CALCULATION OF CONVERSION COST

PARTICULARS AMOUNT

DIRECT LABOUR $45,000

MANUFACTURING OVERHEADS $1,90,000

TOTAL CONVERSION COST $2,35,000

Conversion costs are the costs involved in converting the direct material into the product and therefore are direct labor and manufacturing overhead are added.

PART 5 PERIOD COST

Period costs are any costs a company incurs that are not directly related to the production process. This means they are not related to the cost of one product or inventory costs for a business, therefore period costs are included in a company's financial statement during their assigned accounting period.

FORMULA = SELLING COST +ADMINISTRATIVE EXPENSES

CALCULATION OF PERIOD COST

PARTICULARS AMOUNT

SELLING EXPENSE $15,000

ADMINISTRATIVE EXPENSE $30,000

TOTAL PERIOD COST $45,000