Question

Lakeesha Barnett owns and operates a package mailing store in a college town. Her store, Send It Packing, helps customers wrap items and send them via UPS, FedEx, and the USPS. Send It Packing also rents mailboxes to customers by the month. In May, purchases of materials (stamps, cardboard boxes, tape, Styrofoam peanuts, bubble wrap, etc.) equaled $11,350; the beginning inventory of materials was $1,050, and the ending inventory of materials was $950. Payments for direct labor during the month totaled $25,500. Overhead incurred was $18,100 (including rent, utilities, and insurance, as well as payments of $14,050 to UPS and FedEx for the delivery services sold). Since Send It Packing is a franchise, Lakeesha owes a monthly franchise fee of 5 percent of sales. She spent $2,750 on advertising during the month. Other administrative costs (including accounting and legal services and a trip to Dallas for training) amounted to $3,600 for the month. Revenues for May were $102,000.

Required:

1. What was the cost of materials used for packaging and mailing services during May?
$

2. What was the prime cost for May?
$

3. What was the conversion cost for May?
$

4. What was the total cost of services for May?
$

Answer 1

1. Cost of material = $11,450

2. Prime cost =$36,950

3. Conversion cost = $43,600

4. Total cost of service = $55,050

1. The calculation for the cost of material which is used for packing and mailing service is shown below:

Cost of material = Opening inventory + Purchases - ending inventory

                          = $1,050 + $11,350 - $950

                          = $11,450

2. The calculation for the prime cost is shown below:

Prime cost = Direct labor + direct material

                 = $25,500 + $11,450

                 = $36,950

3. The calculation for conversion cost is shown below:

Conversion cost = Direct labor + overhead

                           = $25,500 + $18,100

                           = $43,600

4. The calculation for the total cost of service is shown below:

Total cost of service = Direct labor + cost of material + overhead

                                 = $25,500 + $11,450 + $18,100

                                 = $55,050