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Exercise 2-2 Classification of Costs as Period or Product Costs [LO2]
Suppose that you have been given a summer job at Fairwings Avionics, a company that manufactures sophisticated radar sets for commercial aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its tremendous growth. The bank requires financial statements before approving such a loan.

Required:
Classify the below costs as either product (inventoriable) costs or period (noninventoriable) costs for purposes of preparing the financial statements for the bank.

Costs Product/Period
1. The cost of the memory chips used in a radar set. __________
2. Factory heating costs. __________
3. Factory equipment maintenance costs. __________
4. Training costs for new administrative employees. __________
5. The cost of the solder that is used in assembling the radar sets. __________
6. The travel costs of the company`s salespersons. __________
7. Wages and salaries of factory security personnel. __________
8. The cost of air-conditioning executive offices. __________
9. Wages and salaries in the department that handles billing customers. __________
10. Depreciation on the equipment in the fitness room used by factory workers. __________
11. Telephone expenses incurred by factory management. __________
12. The costs of shipping completed radar sets to customers. __________
13. The wages of the workers who assemble the radar sets. __________
14. The president`s salary. __________
15. Health insurance premiums for factory personnel. __________

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Exercise 2-3 Constructing an Income Statement [LO3]
Last month Mountain High, a mountain sporting goods retailer, had total sales of \$3,200,000, selling expenses of \$110,000, and administrative expenses of \$470,000. The company had beginning merchandise inventory of \$140,000, purchased additional merchandise inventory for \$2,550,000, and had ending merchandise inventory of \$180,000.

Required:
Determine the net operating income for the company.

Net operating income \$ ____________

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Exercise 2-10 Product Cost Flows; Product versus Period Costs [LO2, LO3]
Ryser Company was organized on May 1. On that date the company purchased 35,000 plastic emblems, each with a peel-off adhesive backing. The front of the emblems contained the company`s name, accompanied by an attractive logo. Each emblem cost Ryser Company \$2.

During May, 31,000 emblems were drawn from the Raw Materials inventory account. Of these, 1,000 were taken by the sales manager to an important sales meeting with prospective customers and handed out as an advertising gimmick. The remaining emblems drawn from inventory were affixed to units of the company`s product that were being manufactured during May. Of the units of product having emblems affixed during May, 90% were completed and transferred from Work in Process to Finished Goods. Of the units completed during the month, 75% were sold and shipped to customers.

Requirement 1:
Determine the cost of emblems that would be in each of the following accounts at May 31

(a) Raw Materials

Cost in Raw Materials \$ ____________

(b) Work in Process

Cost in Work in Process \$ ____________

(c) Finished Goods

Cost in Finished Goods \$ ____________

(d) Cost of Goods Sold

Cost in cost of Goods Sold \$ ____________

Cost in Advertising Expense \$ ____________

Requirement 2:
Specify whether each of the above accounts would appear on the balance sheet or on the income statement at May 31.

Raw Materials __________
Work in Process __________
Finished Goods __________
Cost of Goods Sold __________

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Exercise 2-4 Prepare a Schedule of Cost of Goods Manufactured [LO4]
Mannerman Fabrication manufactures a variety of products in its factory. Data for the most recent month`s operations appear below:

Beginning raw materials inventory \$ 57,000
Purchases of raw materials \$ 430,000
Ending raw materials inventory \$ 69,000
Direct labor \$ 220,000
Beginning work in process inventory \$ 191,000
Ending work in process inventory \$ 219,000
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Required:
Prepare a schedule of cost of goods manufactured for the company for the month.

Mannerman Fabrication
Schedule of Cost of Goods Manufactured
Direct materials:
__________ \$ ____________
__________ : __________ ____________
__________ ____________
__________ : __________ ____________
Raw materials used in production \$ ____________
__________ ____________
__________ ____________
Total manufacturing costs ____________
__________ : __________ ____________
____________
__________ : __________ ____________
Cost of goods manufactured \$ ____________
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Question 5:
Exercise 2-8 (Appendix 2A) Classification of Overtime Cost [LO8]
Several weeks ago you called Jiffy Plumbing Company to have some routine repair work done on the plumbing system in your home. The plumber came about two weeks later, at four o`clock in the afternoon, and spent two hours completing your repair work. When you received your bill from the company, it contained a \$75 charge for labor?\$30 for the first hour and \$45 for the second.
When questioned about the difference in hourly rates, the company`s service manager explained that the higher rate for the second hour contained a charge for an "overtime premium," since the union required that plumbers be paid time and a half for any work in excess of eight hours per day. The service manager further explained that the company was working overtime to "catch up a little" on its backlog of work orders, but still needed to maintain a "decent" profit margin on the plumbers` time.

Requirement 1:
Do you agree with the company`s computation of the labor charge on your job?

(a) Yes
(b) No

Requirement 2:
The company pays its plumbers \$20 per hour for the first eight hours worked in a day and \$30 per hour for any additional time worked. Show how the cost of the plumber`s time for the day (nine hours) should be allocated between direct labor cost and general overhead cost on the company`s books. (Omit the "\$" sign in your response.)

Direct labor cost \$ ____________
Total labor cost \$ ____________
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Requirement 3:
A charge for an overtime premium might be justified if the customer requested that the work be done on a "rush" basis. State whether the above statement is true.

(a) True
(b) False

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