Question

The table below has the costs for a specific period:

  

Cost item	Amount
Direct labour	$90,000
Direct material	$80,000
Advertising	$40,000
Factory supervision	$50,000
Sales Commission	$60,000
Depreciation, administrative office equipment	$5,000
indirect materials, factory	$7,000
Depreciation, factory building	$10,000
Administrative, office supplies	$3,000

Required:

1. What is the total period cost?
2. What is the total direct product cost?
3. What is the total indirect product cost?
4. From the cost items listed in the table above, list one indirect product cost which varies with the level of output.
5. Under variable costing, what is the average unit product cost for the specific period? Consider that during this specific period 1,000 units of only one type of product were manufactured.
6. Under absorption costing, what is the average unit product cost for the specific period? Consider that during this specific period 1,000 units of only one type of product were manufactured.
7. What is the underlying difference and implication between variable and absorption costing product per unit?   

Answer 1

ANSWER 1: CALCULATION OF TOTAL PERIOD COST
COST ITEM					AMOUNT
DIRECT LABOUR				$    90,000.00
DIRECT MATERIAL				$    80,000.00
ADVERTISING				$    40,000.00
FACTORY SUPERVISION			$    50,000.00
SALES COMMISSION				$    60,000.00
DEPRECIATION, ADMINISTRATIVE OFFICE EQUIPMENT	$      5,000.00
INDIRECT MATERIALS, FACTORY			$      7,000.00
DEPRECIATION, FACTORY BUILDING		$    10,000.00
ADMINSTRATIVE, OFFICE SUPPLIES		$      3,000.00
TOTAL PERIOD COST				$ 345,000.00

ANSWER 2: TOTAL DIRECT PRODUCT COST
COST ITEM					AMOUNT
DIRECT LABOUR				$    90,000.00
DIRECT MATERIAL				$    80,000.00
TOTAL DIRECT PRODUCT COST			$ 170,000.00

ANSWER 3: TOTAL INDIRECT PRODUCT COST
COST ITEM					AMOUNT
ADVERTISING				$    40,000.00
FACTORY SUPERVISION			$    50,000.00
SALES COMMISSION				$    60,000.00
DEPRECIATION, ADMINISTRATIVE OFFICE EQUIPMENT	$      5,000.00
INDIRECT MATERIALS, FACTORY			$      7,000.00
DEPRECIATION, FACTORY BUILDING		$    10,000.00
ADMINSTRATIVE, OFFICE SUPPLIES		$      3,000.00
TOTAL INDIRECT PRODUCT COST			$ 175,000.00

ANSWER 4: INDIRECT COST WHICH WILL VARY WITH THE LEVEL OF OUTPUT IS INDIRECT MATERIALS SINCE AS THE LEVEL OF OUTPUT WILL CHANGE, INDIRECT MATERIAL REQUIREMENT AND COST WILL ALSO CHANGE.

NOTE: SINCE IT WAS NOT MENTIONED IN THE QUESTION ABOUT HOW MANY PARTS ARE NEEDED TO BE ANSWERED, THUS I HAVE ANSWERED THE FIRST FOUR PARTS AS PER THE POLICY. LOOKING FORWARD TO YOUR POSITIVE RESPONSE.