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Chapter 16: 15RQ (page 885)
How do period costs differ from product costs?
The major difference is that period costs are a normal operating expense and product costs are incurred on producing goods.
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Preparing a schedule of cost of goods manufactured and an income statement for a manufacturing company
Chewy Bones manufactures its own brand of pet chew bones. At the end of December 2018, the accounting records showed the following:
Balances: Beginning Ending
Direct Materials \( 13,400 \) 10,500
Work-in-Process Inventory 0 1,500
Finished Goods Inventory 0 5,400
Other information:
Direct materials purchases $ 39,000
Plant janitorial services 900
Sales salaries 5,100
Delivery costs 1,700
Net sales revenue 115,000
Utilities for plant 1,200
Rent on plant 9,000
Customer service hotline costs 1,600
Direct labor 16,000
Requirements
1. Prepare a schedule of cost of goods manufactured for Chewy Bones for the year ended December 31, 2018.
2. Prepare an income statement for Chewy Bones for the year ended December 31, 2018.
3. How does the format of the income statement for Chewy Bones differ from the income statement of a merchandiser?
4. Chewy Bones manufactured 17,500 units of its product in 2018. Compute the company’s unit product cost for the year, rounded to the nearest cent.
Question:Classifying period costs and product costs
Lawlor, Inc. is the manufacturer of lawn care equipment. The company incurs the following costs while manufacturing weed trimmers:
• Shaft and handle of weed trimmer
• Motor of weed trimmer
• Factory labor for workers assembling weed trimmers
• Nylon thread used by the weed trimmer (not traced to the product)
• Glue to hold the housing together
• Plant janitorial wages
• Depreciation on factory equipment
• Rent on plant
• Sales commissions
• Administrative salaries
• Plant utilities
• Shipping costs to deliver finished weed trimmers to customers
Requirements
1. Describe the difference between period costs and product costs.
2. Classify Lawlor’s costs as period costs or product costs. If the costs are product costs, further classify them as direct materials, direct labor, or manufacturing overhead.
What are prime costs? Conversion costs?
Computing cost of goods manufactured and cost of goods sold
Use the following information for a manufacturer to compute cost of goods manufactured and cost of goods sold:
Balances: Beginning Ending
Direct Materials \( 27,000 \) 28,000
Work-in-Process Inventory 40,000 32,000
Finished Goods Inventory 18,000 25,000
Other information:
Purchases of direct materials $ 73,000
Direct labor 88,000
Manufacturing overhead 43,000
This is the first problem in a sequence of problems for Piedmont Computer Company, a manufacturer of personal computers and tablets. During its first month of manufacturing, Piedmont Computer Company incurred the following manufacturing costs:
Balances: Beginning Ending
Direct Materials \( 10,500 \) 9,700
Work-in-Process Inventory 0 17,000
Finished Goods Inventory 0 31,000
Other information:
Direct materials purchases $ 16,000
Plant janitorial services 500
Sales salaries expense 10,000
Delivery expense 1,600
Sales revenue 1,100,000
Utilities for plant 16,000
Rent on plant 9,000
Customer service hotline costs 19,000
Direct labor 210,000
Prepare a schedule of cost of goods manufactured for Piedmont Computer Company for the month ended January 31, 2020.
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