Question:
Kubin Company’s relevant range of production is 18,000 to 22,000 units. When it produces and sells 20,000 units, its average costs per unit are as follows:
Required:
1. For financial accounting purposes, what is the total amount of product costs incurred to make 20,000 units?
2. For financial accounting purposes, what is the total amount of period costs incurred to sell 20,000 units?
3. For financial accounting purposes, what is the total amount of product costs incurred to make 22,000 units?
4. For financial accounting purposes, what is the total amount of period costs incurred to sell 18,000 units?
1.Total amount of product costs =
2.Total amount of period costs incurred =
3.Total amount of product costs =
4.Total amount of period costs =
Answer:
General Information
Product Cost: Product cost can be defined as the total cost incurred during the manufacturing of a product that includes direct labor, direct material and manufacturing overheads.
Absorption Costing: It refers to one of the methods to compute the cost of the manufacturing product. While computing the product cost, this method takes total cost of the product that includes variable overhead manufacturing cost as well as fixed overhead manufacturing cost.
Period Cost: It is the cost that is neither an essential part of the manufacturing process nor directly associated with the manufacturing cost.
Direct Material: It can be defined as those supplies and materials that are used for manufacturing the product and can be directly associated with the product.
Direct Labor: Direct labor can be defined as the personnel that are engaged directly in the manufacturing of products rather than its maintenance, administration, or other support services.
Variable overhead: It can be defined as a manufacturing cost that varies as per the level of production. This is used to determine future costs and expenditure of a manufacturing company. It is also used to determine the lowest possible price at which the company’s product can be sold. Example: electricity consumed by machinery.
Fixed Overhead: It refers to the cost that is to be incurred, irrespective of the level of production. They do not vary due to the change in the level of an organization’s activities. These costs are required to operate the business. Example: rent of a building, insurance, etc.
Variable Administrative Expenses: These are operating expenses other than the manufacturing costs. Some of the examples of variable administrative expenses are a commission, freight, salaries, etc.
Fixed Administrative Expenses: These refer to the operating expenses that do not change, irrespective of the level of goods manufactured. Some of the examples are rent and insurance.
Sales Commission: It can be defined as an additional income received by an employee if he meets as well as exceeds the minimum level of threshold set by the employer.
Selling expenses: These can be defined as the costs associated with selling and distribution, marketing, advertising, website maintenance, and social media expenses.
