Bloom's: Apply
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement
126) A manufacturing company prepays its insurance coverage for a three-year period. The premium for the three years is $2,100 and is paid at the beginning of the first year. Sixty percent of the premium applies to manufacturing operations and forty percent applies to selling and administrative activities. What amounts should be considered product and period costs respectively for the first year of coverage?
Product
Period
A)
$280
$420
B)
$420
$280
C)
$700
$0
D)
$0
$700
A) Choice A
B) Choice B
C) Choice C
D) Choice D
Answer: B
Explanation: Annual insurance expense = $2,100 ÷ 3 = $700
Portion applicable to product cost = 0.60 × $700 = $420
Portion applicable to period cost = 0.40 × $700 = $280
Difficulty: 2 Medium
Topic: Cost Classifications for Preparing Financial Statements
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements: product costs and period costs.
Bloom's: Apply
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement
127) Shelp Corporation has provided the following information:
Cost per Unit
Cost per Period
Direct materials
$
7.15
Direct labor
$
3.35
Variable manufacturing overhead
$
1.40
Fixed manufacturing overhead
$
81,000
Sales commissions
$
0.50
Variable administrative expense
$
0.50
Fixed selling and administrative expense
$
40,500
For financial reporting purposes, the total amount of period costs incurred to sell 9,000 units is closest to:
A) $33,000
B) $9,000
C) $40,500
D) $49,500
Answer: D
Explanation:
Sales commissions
$
0.50
Variable administrative expense
0.50
Variable selling and administrative expense per unit
$
1.00
Total variable selling and administrative expense
($1.00 per unit × 9,000 units sold)
$
9,000
Total fixed selling and administrative expense
40,500
Total period (nonmanufacturing) cost
$
49,500
Difficulty: 1 Easy
Topic: Cost Classifications for Preparing Financial Statements; Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements: product costs and period costs.; 01-04 Understand cost classifications used to predict cost behavior: variable costs, fixed costs, and mixed costs.
Bloom's: Apply
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement
128) Phaup Corporation's relevant range of activity is 3,000 units to 7,000 units. When it produces and sells 5,000 units, its average costs per unit are as follows:
Average
Cost per Unit
Direct materials
$
4.85
Direct labor
$
4.00
Variable manufacturing overhead
$
1.75
Fixed manufacturing overhead
$
3.90
Fixed selling expense
$
0.90
Fixed administrative expense
$
0.60
Sales commissions
$
0.50
Variable administrative expense
$
0.45
For financial reporting purposes, the total amount of period costs incurred to sell 5,000 units is closest to:
A) $8,200
B) $12,250
C) $7,500
D) $4,750
Answer: B
Explanation:
Sales commissions
$
0.50
Variable administrative expense
0.45
Variable selling and administrative expense per unit
$
0.95