Question

Which of the following is a period cost?

a. Wages of an assembly worker

b. Depreciation on factory equipment

c. Sales commissions

d. Power

A cost that has been incurred in the past and is irrelevant is termed a(n):

a. variable cost.

b. opportunity cost.

c. sunk cost.

d. differential cost.

Compute factory overhead cost from the following costs:

Depreciation on factory buildings	$ 45,950
Depreciation on office equipment	32,980
Direct materials used	96,840
Indirect labor	6,580

a. $96,840

b. $78,930

c. $73,000

d. $52,530

Which of the following items would be classified as a part of prime cost?

a. Administrative cost

b. Direct labor cost

c. Factory overhead cost

d. Selling cost

Answer 1

Solution:
1st	Answer is C. Sales commissions
Working Notes:
	Sales commission is a period cost , as it is not included in product cost and directly charged to income statement.
	Wages of an assembly worker , Depreciation on factory equipment & Power are included in product cost , so there are not product cost.
2nd	Answer is C. sunk cost.
Working Notes:
	Sunk cost is the cost that has been incurred in past or committed in past , as it will be same for each alternative decision so it is also termed as irrelevant. Hence Sunk cost is a cost that has been incurred in the past and is irrelevant.
3rd	Answer is d. $52,530
Working Notes:
	Factory overhead cost = Depreciation on factory buildings + Indirect labor
		=$45,950 +$6,580
		=$52,530
4th	Answer is b. Direct labor cost
Working Notes:
	Prime cost consist of direct labor & direct materials cost.
	Hence, Direct labor cost would be classified as a part of prime cost.
Please feel free to ask if anything about above solution in comment section of the question.