ACCT 325 Chapter 2 Problem

The following cost data for the year just ended pertain to Heartstrings, Inc., a greeting card manufacturer:
Service department costs * ……………………………………. $ 50,000
Direct labor: wages …………………………………………….

242,500

Direct labor: fringe benefits ……………………………………

47,500

Indirect labor: fringe benefits ………………………………….

15,000

Fringe benefits for production supervisor …………………….

4,500

Total overtime premiums paid ………………………………..

27,500

Cost of idle time: production employees § ……………………

20,000

Administrative costs ………………………………………….

75,000

Rental of office space for sales personnel † …………………

7,500

Sales commissions …………………………………….…….

2,500

Product promotion costs …………………………………….

5,000

Direct material used …………………………………………

1,050,000

Advertising expense ………………………………………...

49,500

Depreciation on factory building ……………………………

57,500

Cost of finished-goods inventory at year-end ………………

57,500

Indirect labor: wages ………………………………………..

70,000

Production supervisor’s salary ………………………………

22,500

*All services are provided to manufacturing departments.
§ Cost of idle item is an overhead item; it is not included in direct-labor wages given above.
† The rental of sales space was made necessary when the sales offices were converted to storage space for raw material.

Required:
1. Compute each of the following costs for the year just ended:
(a) Total prime costs,
(b) Total manufacturing overhead costs,
(c) Total conversion costs,
(d) Total product costs,
(e) Total period costs.

2. One of the costs listed above is an opportunity cost. Identify this cost, and explain why it is an opportunity cost.
SOLUTION
1.

a.

Total prime costs:
Direct material....................................................................................
Direct labor:
Wages.............................................................................................
Fringe benefits................................................................................
Total prime