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Chapter 16: Q16-5SE-h (page 886)
Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost:
h. Cost to purchase wood pulp.
The cost to purchase wood pulp will come under the product cost.
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Making ethical decisions
Sue Peters is the controller at Vroom, a car dealership. Dale Miller recently has been hired as the bookkeeper. Dale wanted to attend a class in Excel spreadsheets, so Sue temporarily took over Dale’s duties, including overseeing a fund used for gas purchases before test drives. Sue found a shortage in the fund and confronted Dale when he returned to work. Dale admitted that he occasionally uses the fund to pay for his own gas. Sue estimated the shortage at $450.
Requirements 1. What should Sue Peters do?
How does a manufacturing company calculate unit product cost?
Computing direct materials used
Tuscany, Inc. has compiled the following data:
Purchases of Direct Materials $ 6,300
Freight In 400
Property Taxes 800
Ending Direct Materials 1,300
Beginning Direct Materials 4,100
Compute the amount of direct materials used.
Identifying ethical standards
The Institute of Management Accountants’ Statement of Ethical Professional Practice requires managerial accountants to meet standards regarding competence, confidentiality, integrity, and credibility. Consider the following situations. Which standard(s) is(are) violated in each situation?
d. You failed to read the detailed specifications of a new accounting software package that you asked your company to purchase. After it is installed, you are surprised that it is incompatible with some of your company’s older accounting software.
Classifying period costs and product costs
Langley, Inc. is the manufacturer of lawn care equipment. The company incurs the following costs while manufacturing edgers:
• Handle and shaft of edger
• Motor of edger
• Factory labor for workers assembling edgers
• Lubricant used on bearings in the edger (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 edgers to customers
Requirements
1. Describe the difference between period costs and product costs.
2. Classify Langley’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.
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