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 \(500 each.

COSTS	Variable or fixed		Product or period
Variable	Variable	Fixed	Product	Period
1. Plastic for casting - \)17,000
2. Wages of assembly workers - \(82,000
3. Property taxes on factory—\)5,000
4. Accounting staff salaries—\(35,000
5. Drum stands (1,000 stands purchased)—\)26,000
6. Rent cost of equipment for sales staff—\(10,000
7. Upper management salaries—\)125,000
8. Annual flat fee for factory maintenance service—\(10,000
9. Sales commissions—\)15 per unit
10. Machinery depreciation, straight-line—$40,000

Required

1. Classify 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.)

2. Compute the manufacturing cost per drum set.

Analysis Component

3. Assume that 1,200 drum sets are produced in the next year. What do you predict will be the total cost of plastic for the casings and the per unit cost of the plastic for the casings? Explain.

4. Assume that 1,200 drum sets are produced in the next year. What do you predict will be the total cost of property taxes and the per unit cost of the property taxes? Explain.

Short answer

1. Variable product cost total:

Particular	Total cost $
Variable cost:
Plastic for casing	$17,000
Wages of assembly workers	82,000
Drum stand	26,000
Total variable cost	$125,000

2.The manufacturing cost per set of drums is $180.

3.The total cost of plastic for casing 1,200 drum sets is$20,400.

4. The per unit cost of property tax on the factory is$4.17.

Step-by-step solution

Definition of Period Cost

The cost expensed and reported on the income statement in the same period they are incurred, is known as period costs. It includes expenses such as marketing and selling expenses.

Step 2:Cost classification

Costs	Variable or fixed		Product or period
	Variable	Fixed	Product	Period
1. Plastic for casting - $17,000	$17,000		$17,000
2. Wages of assembly workers - $82,000	$82,000		$82,000
3. Property taxes on factory—$5,000		$5,000	$5,000
4. Accounting staff salaries—$35,000		$35,000		$35,000
5. Drum stands (1,000 stands purchased)—$26,000	$26,000		$26,000
6. Rent cost of equipment for sales staff—$10,000		$10,000		$10,000
7. Upper management salaries—$125,000		$125,000		$125,000
8. Annual flat fee for factory maintenance service—$10,000		$10,000	$10,000
9. Sales commissions—$15 per unit	$15,000			$15,000
10. Machinery depreciation, straight-line—$40,000		$40,000	$40,000

Calculation of manufacturing cost per drum set

Particular	Total cost $	Per unit $
Variable cost:
Plastic for casing	$17,000	$17
Wages of assembly workers	82,000	82
Drum stand	26,000	26
Total variable cost	$125,000	$125
Fixed cost:
Property tax on factory	$5,000	$5
Annual fees for factory maintenance	10,000	10
Machinery depreciation	40,000	40
Total fixed cost	$55,000	$55
Total cost	$180,000	$180

Step 4:Cost of a plastic casing for 1,200 units

$\begin{array}{c}\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{c}\mathbf{o}\mathbf{s}\mathbf{t}\mathbf{}\mathbf{o}\mathbf{f}\mathbf{}\mathbf{p}\mathbf{l}\mathbf{a}\mathbf{s}\mathbf{t}\mathbf{i}\mathbf{c}\mathbf{}\mathbf{c}\mathbf{a}\mathbf{s}\mathbf{i}\mathbf{n}\mathbf{g}\mathbf{=}\mathbf{P}\mathbf{e}\mathbf{r}\mathbf{}\mathbf{u}\mathbf{n}\mathbf{i}\mathbf{t}\mathbf{}\mathbf{c}\mathbf{o}\mathbf{s}\mathbf{t}\mathbf{}\mathbf{o}\mathbf{f}\mathbf{p}\mathbf{l}\mathbf{a}\mathbf{s}\mathbf{t}\mathbf{i}\mathbf{c}\mathbf{}\mathbf{c}\mathbf{a}\mathbf{s}\mathbf{i}\mathbf{n}\mathbf{g}\mathbf{\times }\mathbf{1}\mathbf{,}\mathbf{200}\\ \mathbf{=}\mathbf{\$}\mathbf{17}\mathbf{\times }\mathbf{1}\mathbf{,}\mathbf{200}\\ \mathbf{=}\mathbf{\$}\mathbf{20}\mathbf{,}\mathbf{400}\end{array}$

The cost of plastic casing will remain the same at $17 per unit.

Cost of property tax for 1,200 units

The factory’s total property tax cost will remain at $5,000 because it is a fixed cost.

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