Question

Mike Cichanowski founded Wenonah Canoe and later purchased Current Designs, a company that designs and manufactures kayaks. The kayak-manufacturing facility is located just a few minutes from the canoe company’s headquarters in Winona, Minnesota.

Current Designs makes kayaks using two different processes. The rotational molding process uses high temperature to melt polyethylene powder in a closed rotating metal mold to produce a complete kayak hull and deck in a single piece. These kayaks are less labor-intensive and less expensive for the company to produce and sell.

Its other kayaks use the vacuum-bagged composite lamination process (which we will refer to as the composite process). Layers of fiberglass or Kevlar^® are carefully placed by hand in a mold and are bonded with resin. Then, a high-pressure vacuum is used to eliminate any excess resin that would otherwise add weight and reduce strength of the finished kayak. These kayaks require a great deal of skilled labor as each boat is individually finished. The exquisite finish of the vacuum-bagged composite kayaks gave rise to Current Designs’ tag line, “A work of art, made for life.”

Current Designs has the following managers:

Mike Cichanowski, CEO

Diane Buswell, Controller

Deb Welch, Purchasing Manager

Bill Johnson, Sales Manager

Dave Thill, Kayak Plant Manager

Rick Thrune, Production Manager for Composite Kayaks

(c) When Diane Buswell, controller for Current Designs, reviewed the accounting records for a recent period, she noted the cost items and amounts shown below (amounts are assumed). Enter the amount for each item in the appropriate cost category. Then sum the amounts in each cost category column.

Product Costs

Payee

Purpose

Amount

Direct Materials

Direct Labour

Manufacturing Overhead

Period Costs

Winona Agency

Property insurance for the manufacturing plant

3,120

$

$

$

$

Bill Johnson (sales manager)

Payroll check—payment to sales manager

1,700

Xcel Energy

Electricity for manufacturing plant

440

Winona Printing

Price lists for salespeople

90

Jim Kaiser (sales representative)

Sales commissions

1,300

Dave Thill (plant manager)

Payroll check—payment to plant manager

1,590

Dana Schultz (kayak assembler)

Payroll check—payment to kayak assembler

740

Composite One

Bagging film used when kayaks are assembled; it is discarded after use

250

Fastenal

Shop supplies—brooms, paper towels, etc.

900

Ravago

Polyethylene powder which is the main ingredient for the rotational molded kayaks

3,340

Winona County

Property taxes on manufacturing plant

5,670

North American Composites

Kevlar® fabric for composite kayaks

4,670

Waste Management

Trash disposal for the company office building

670

None

Journal entry to record depreciation of manufacturing equipment

4,900

Totals

Answer 1

(c)     When Diane Buswell, controller for Current Designs, reviewed the accounting records for a recent period, she noted the following items. Classify each item as a product cost or a period cost. If a cost is a product cost, note if it is a direct materials, direct labor, or manufactur­ing overhead item.

Payee	Purpose	Product Costs	Period Costs
Direct Materials	Direct Labor	Manufacturing Overhead
Winona Agency	Property insurance for the manufacturing plant			X
Bill Johnson (sales manager)	Payroll–payment to sales manager				X
Xcel Energy	Electricity for manufacturing plant			X
Winona Printing	Price lists for salespeople				X
Jim Kaiser (sales representative)	Sales commissions				X
Dave Thill (plant manager)	Payroll–payment to plant manager			X
Dana Schultz (kayak assembler)	Payroll–payment to kayak assembler		X
Composite One	Bagging film used when kayaks are assembled. It is discarded after use.			X
Fastenal	Shop supplies–brooms, paper towels, etc.			X
Ravago	Polyethylene powder which is the main ingredient for the rotational molded kayaks	X
Winona County	Property taxes on manufacturing plant			X
North American Composites	Kevlar® fabric for composite kayaks	X
Waste Management	Trash disposal for the company office building				X
None	Journal entry to record depreciation of manufacturing equipment			X