Wages Of Assembly Line Workers Salaries Of Finished Goods

Wages Of Assembly Line Workers310000salaries Of Finished Goods

Wages of assembly line workers $310,000; Salaries of finished goods warehouse personnel $105,200; Material for units made $365,000; Oil for factory machines $1,900; Depreciation on salespersons’ cars $18,700; Depreciation on factory equipment $56,100; Rent on rooms at a Florida resort for holding the annual sales conference $8,820; Factory supervisors’ salaries $98,000.

ABC's product costs include all costs associated with manufacturing the products, which encompass direct materials, direct labor, and manufacturing overhead. Manufacturing overhead covers all indirect manufacturing costs, including depreciation on factory equipment, factory supervisors’ salaries, oil for machines, and other indirect factory expenses. Operating expenses (or period costs) include costs like salespersons’ salaries, rent for the sales conference, and other expenses unrelated to the manufacturing process.

Paper For Above instruction

ABC Corporation’s costing analysis involves distinguishing between product costs, manufacturing overhead, and period (operating) expenses. Accurate classification of these costs is essential for proper financial reporting, cost control, and decision-making. This paper discusses the determination and classification of ABC’s costs based on the provided data, aiming to clarify the accounting treatment for each category.

Introduction

Cost accounting plays a critical role in helping firms understand the true costs of their products and operations. It allows management to price products competitively, analyze profitability, and control expenses. The differentiation between product costs, manufacturing overhead, and operating expenses underpins effective financial management. For ABC Corporation, understanding which costs belong in each category directly influences financial statements and strategic decisions.

Classification of Costs

Based on the data provided, ABC’s costs can be categorized as follows:

• Product Costs: These are costs directly associated with manufacturing the products. For ABC, the material costs of $365,000 and wages of assembly line workers amounting to $310,000 are clearly classified as product costs because they pertain directly to producing units.
• Manufacturing Overhead: Indirect manufacturing costs that support production but are not directly traceable per unit. For ABC, these include depreciation on factory equipment ($56,100), oil for factory machines ($1,900), and factory supervisors’ salaries ($98,000). These costs typically include indirect wages, depreciation, and other factory-related expenses.
• Period (Operating) Expenses: Costs not directly tied to manufacturing but related to overall business operations. ABC’s period costs include salaries of finished goods warehouse personnel ($105,200), depreciation on salespersons’ cars ($18,700), and rent on the resort rooms for the sales conference ($8,820). These are considered operating expenses because they are associated with selling, administration, and other non-manufacturing activities.

Calculation of Product Costs

Product costs encompass direct materials and direct labor, along with manufacturing overhead. In this case, the primary product costs are:

• Material for units made: $365,000
• Wages of assembly line workers: $310,000

Adding these indicates that ABC’s total product costs are:

$675,000

Calculation of Manufacturing Overhead

Manufacturing overhead consists of indirect costs supporting production:

• Depreciation on factory equipment: $56,100
• Oil for factory machines: $1,900
• Factory supervisors’ salaries: $98,000

Summing these yields:

$156,000

Calculation of Operating Expenses (Period Costs)

Operating expenses include expenses beyond direct manufacturing, such as administrative and selling costs:

• Salaries of finished goods warehouse personnel: $105,200
• Depreciation on salespersons’ cars: $18,700
• Rent on resort rooms for the sales conference: $8,820

Total period costs amount to:

$132,720

Summary

Therefore, ABC’s costs are categorized as follows:

1. Product costs: $675,000
2. Manufacturing overhead: $156,000
3. Period (operating) expenses: $132,720

Conclusion

Proper classification of costs is fundamental for accurate financial analysis and managerial decision-making. ABC’s manufacturing costs comprise direct materials, direct labor, and factory overhead, totaling $831,000 for the period. Operating expenses, amounting to $132,720, are rooted in sales, administration, and other non-manufacturing activities. Correctly classifying these costs supports effective costing strategies, pricing, and financial reporting, ultimately contributing to ABC’s operational efficiency and profitability.

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