Question

Listed here are the total costs associated with the 2017 production of 1,000 drum sets manufactured by TrueBeat. The drum sets sell for $469 each. Costs1. Plastic for casing—$16,0002. Wages of assembly workers—$82,0003. Property taxes on factory—$6,0004. Accounting staff salaries—$35,0005. Drum stands (1,000 stands purchased)—$34,0006. Rent cost of equipment for sales staff—$36,0007. Upper management salaries—$150,0008. Annual flat fee for factory maintenance service—$12,0009. Sales commissions—$12 per unit10. Machinery depreciation, straight-line—$47,000Problem 1-1A Part 1Classify each cost and its amount as (a) either variable or fixed and (b) either product or period. (The first cost is completed as an example.

Answer 1

Answer:

Explanation:

We have the following information:

Costs:

1. Plastic for casing—$16,000

2. Wages of assembly workers—$82,000

3. Property taxes on factory—$6,000

4. Accounting staff salaries—$35,000

5. Drum stands (1,000 stands purchased)—$34,000

6. Rent cost of equipment for sales staff—$36,000

7. Upper management salaries—$150,000

8. Annual flat fee for factory maintenance service—$12,000

9. Sales commissions—$12 per unit

10. Machinery depreciation, straight-line—$47,000

A)

Variable costs and fixed costs are the two main costs a company has when producing goods and services. A variable cost varies with the amount produced, while a fixed cost remains the same no matter how much output a company produces.

Variable:

1. Plastic for casing—$16,000

5. Drum stands (1,000 stands purchased)—$34,000

9. Sales commissions—$12 per unit

Fixed

2. Wages of assembly workers—$82,000

3. Property taxes on factory—$6,000

4. Accounting staff salaries—$35,000

6. Rent cost of equipment for sales staff—$36,000

7. Upper management salaries—$150,000

8. Annual flat fee for factory maintenance service—$12,000

10. Machinery depreciation, straight-line—$47,000

B)

The key difference between product costs and period costs is that production costs are only incurred if products are acquired or produced, and period costs are associated with the passage of time. Thus, a business that has no production or inventory purchasing activities will incur no product costs, but will still incur period costs. Product costs are sometimes broken out into the variable and fixed subcategories.

Product:

1. Plastic for casing—$16,000

2. Wages of assembly workers—$82,000

5. Drum stands (1,000 stands purchased)—$34,000

6. Rent cost of equipment for sales staff—$36,000

9. Sales commissions—$12 per unit

Period:

3. Property taxes on factory—$6,000

4. Accounting staff salaries—$35,000

7. Upper management salaries—$150,000

8. Annual flat fee for factory maintenance service—$12,000

10. Machinery depreciation, straight-line—$47,000