Noteworthy, Inc., produces and sells small electronic keyboards. Assume that you have the following information about Noteworthy’s costs for the most recent month.
Depreciation on factory equipment $800
Depreciation on CEO's company car $100
Speakers used in the keyboard $1,100
Production supervisor's salary $2,800
Glue and screws used in the keyboards $370
Wages of persons who install the speakers $3,000
Cost to run an ad on local radio stations $600
Utilities for the factory $1,200
Personnel manager's salary 2,500
Wages of person who attaches legs to keyboards $1,950
Required:
1.Calculate the total product cost for Noteworthy.
2.Calculate the prime cost for Noteworthy.
3.Calculate the conversion cost for Noteworthy.
4.Calculate the manufacturing overhead for Noteworthy.
5.Calculate the direct labor for Noteworthy.
6.Calculate the total variable cost (with number of units produced as the activity) for Noteworthy.
7.Calculate the total fixed cost (with number of units produced as the activity) for Noteworthy.
To calculate the different costs for Noteworthy, we need to first understand the definitions of each term.
1. Total Product Cost: This includes all costs associated with manufacturing a product. It includes both direct costs (direct materials and direct labor) and indirect costs (manufacturing overhead).
To calculate the total product cost for Noteworthy, we add up the costs of direct materials, direct labor, and manufacturing overhead:
Total Product Cost = Direct Materials Cost + Direct Labor Cost + Manufacturing Overhead Cost
In this case, we have the following costs:
- Direct Materials: Speakers, Glue and screws used in the keyboards
- Direct Labor: Wages of persons who install the speakers, Wages of person who attaches legs to keyboards
- Manufacturing Overhead: Depreciation on factory equipment, Utilities for the factory
Adding up these costs, we get:
Total Product Cost = $1,100 (Speakers) + $370 (Glue and screws) + $3,000 (Wages of persons who install the speakers) + $1,950 (Wages of person who attaches legs to keyboards) + $800 (Depreciation on factory equipment) + $1,200 (Utilities for the factory) = $8,420
Therefore, the total product cost for Noteworthy is $8,420.
2. Prime Cost: This includes only the direct costs of manufacturing a product, which are direct materials and direct labor.
To calculate the prime cost for Noteworthy, we need to add up the costs of direct materials and direct labor:
Prime Cost = Direct Materials Cost + Direct Labor Cost
In this case, we have the following costs:
- Direct Materials: Speakers, Glue and screws used in the keyboards
- Direct Labor: Wages of persons who install the speakers, Wages of person who attaches legs to keyboards
Adding up these costs, we get:
Prime Cost = $1,100 (Speakers) + $370 (Glue and screws) + $3,000 (Wages of persons who install the speakers) + $1,950 (Wages of person who attaches legs to keyboards) = $6,420
Therefore, the prime cost for Noteworthy is $6,420.
3. Conversion Cost: This includes the costs incurred to convert raw materials into finished products. It includes direct labor and manufacturing overhead.
To calculate the conversion cost for Noteworthy, we need to add up the costs of direct labor and manufacturing overhead:
Conversion Cost = Direct Labor Cost + Manufacturing Overhead Cost
In this case, we have the following costs:
- Direct Labor: Wages of persons who install the speakers, Wages of person who attaches legs to keyboards
- Manufacturing Overhead: Depreciation on factory equipment, Utilities for the factory
Adding up these costs, we get:
Conversion Cost = $3,000 (Wages of persons who install the speakers) + $1,950 (Wages of person who attaches legs to keyboards) + $800 (Depreciation on factory equipment) + $1,200 (Utilities for the factory) = $7,950
Therefore, the conversion cost for Noteworthy is $7,950.
4. Manufacturing Overhead: This includes all indirect costs of manufacturing a product. It includes costs that are not directly tied to specific units of production, such as depreciation on factory equipment and utilities for the factory.
To calculate the manufacturing overhead for Noteworthy, we need to add up the following costs:
- Depreciation on factory equipment
- Utilities for the factory
Adding up these costs, we get:
Manufacturing Overhead = $800 (Depreciation on factory equipment) + $1,200 (Utilities for the factory) = $2,000
Therefore, the manufacturing overhead for Noteworthy is $2,000.
5. Direct Labor: This includes the wages paid to employees who directly work on the production of the product.
To calculate the direct labor for Noteworthy, we need to add up the following costs:
- Wages of persons who install the speakers
- Wages of person who attaches legs to keyboards
Adding up these costs, we get:
Direct Labor = $3,000 (Wages of persons who install the speakers) + $1,950 (Wages of person who attaches legs to keyboards) = $4,950
Therefore, the direct labor for Noteworthy is $4,950.
6. Total Variable Cost: This includes all costs that vary with the number of units produced. In this case, we don't have any information on the number of units produced or any variable costs associated with the production process. We cannot calculate the total variable cost without this information.
7. Total Fixed Cost: This includes all costs that do not vary with the number of units produced. In this case, we have the following fixed costs:
- Depreciation on CEO's company car
- Cost to run an ad on local radio stations
- Personnel manager's salary
Adding up these costs, we get:
Total Fixed Cost = $100 (Depreciation on CEO's company car) + $600 (Cost to run an ad on local radio stations) + $2,500 (Personnel manager's salary) = $3,200
Therefore, the total fixed cost for Noteworthy is $3,200.