Question

Hadley Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $ 149 Units in beginning inventory 100 Units produced 1,230 Units sold 1,070 Units in ending inventory 260 Variable costs per unit: Direct materials $ 61 Direct labor $ 33 Variable manufacturing overhead $ 6 Variable selling and administrative expense $ 7 Fixed costs: Fixed manufacturing overhead $ 13,530 Fixed selling and administrative expense $ 25,680 What is the total period cost for the month under variable costing?

Answer 1

Answer:

To calculate the total period cost, only fixed costs which do not vary as a result of production activities are taken into consideration.  Therefore, all variable costs are excluded.

The fixed costs include:

Fixed manufacturing overhead - $13,530

Fixed selling and administrative expense - $25,680

Total period cost = $39,210 (13,530 + 25,680)

Explanation:

Under variable costing, the period cost refers to costs that do not depend on production quantity or activity.

Period cost are related to the period instead of level of production or activity.    Rent is a good example of a period cost.

In this example, the variable manufacturing overheads and variable selling and administrative expense are excluded since their values vary depending on the levels of manufacturing and selling activities.  Therefore, their costs are tied to the products or services.

Answer 2

Answer:

the total period cost for the month under variable costing is $46,700

Explanation:

Product Cost Under Variable Costing = Direct Materials + Direct Labor + Variable Overheads

Period Cost Under Variable Costing = Fixed Manufacturing Overheads + All Non-Manufacturing Overheads (Variable and Fixed)

Calculation for the total period cost - Varible Costing

Variable selling and administrative expense ( $ 7× 1,070 Units)       $ 7,490

Fixed manufacturing overhead                                                          $ 13,530

Fixed selling and administrative expense                                        $ 25,680

Total period cost for the month                                                         $46,700