Question

Question: The following calendar year-end information is taken from the December 31, 2017, adjusted trial balance and other records of Best Bikes.

Advertising expenses	$20,250	Miscellaneous production costs	8,440
Depreciation expenses – office equipment	8,440	Office salaries expenses	70,875
Depreciation expenses – selling equipment	10,125	Raw material purchases	894,375
Depreciation – Factory equipment	35,400	Rent expenses – office space	23,625
Factory supervision	121,500	Rent expenses – selling space	27,000
Factory supplies used	6,060	Rent expenses – Factory building	93,500
Factory Utilities	37,500	Maintenance expenses – factory equipment	30,375
Direct labor	562,500	Sales	4,942,625
Indirect labor	59,000	Sales salaries expenses	295,300

Required

1. Classify each cost as either a product or period cost.

2. Classify each product cost as either direct materials, direct labor, or factory overhead.

3. Classify each period cost as either selling expenses or general and administrative expenses.

Short answer

Answer

1. Total product cost is$1,848,650.
2. Factory overhead totals$391,775.
3. Selling expenses total$352,675.

Step-by-step solution

Definition of Selling Expenses

The cost incurred by the business entity, like marketing and distribution expenses, in respect of selling the product to the customer, is known as selling expenses.

Classification of cost as period and product cost

Particular	Amount $	Cost classification
Advertising expenses	$20,250	Period cost
Depreciation expenses – office equipment	8,440	Period cost
Depreciation expenses – selling equipment	10,125	Period cost
Depreciation – Factory equipment	35,400	Product cost
Factory supervision	121,500	Product cost
Factory supplies used	6,060	Product cost
Factory Utilities	37,500	Product cost
Direct labor	562,500	Product cost
Indirect labor	59,000	Product cost
Miscellaneous production costs	8,440	Product cost
Office salaries expenses	70,875	Period cost
Raw material purchases	894,375	Product cost
Rent expenses – office space	23,625	Period cost
Rent expenses – selling space	27,000	Period cost
Rent expenses – Factory building	93,500	Product cost
Maintenance expenses – factory equipment	30,375	Product cost
Sales salaries expenses	295,300	Period cost

Classification of the product cost as direct material, direct labor, or factory overhead

Particular	Amount $	Cost classification	Further classification
Depreciation – Factory equipment	35,400	Product cost	Factory overhead
Factory supervision	121,500	Product cost	Factory overhead
Factory supplies used	6,060	Product cost	Factory overhead
Factory Utilities	37,500	Product cost	Factory overhead
Direct labor	562,500	Product cost	Direct labor
Indirect labor	59,000	Product cost	Factory overhead
Miscellaneous production costs	8,440	Product cost	Factory overhead
Raw material purchases	894,375	Product cost	Direct material
Rent expenses – Factory building	93,500	Product cost	Factory overhead
Maintenance expenses – factory equipment	30,375	Product cost	Factory overhead

Classification of each period cost as selling or general and administrative expenses

Particular	Amount $	Cost classification	Further classification
Advertising expenses	$20,250	Period cost	Selling expenses
Depreciation expenses – office equipment	8,440	Period cost	General and administrative expenses
Depreciation expenses – selling equipment	10,125	Period cost	Selling expenses
Office salaries expenses	70,875	Period cost	General and administrative expenses
Rent expenses – office space	23,625	Period cost	General and administrative expenses
Rent expenses – selling space	27,000	Period cost	Selling expenses
Sales salaries expenses	295,300	Period cost	Selling expenses