Period costs are costs that cannot be capitalized on a company's balance sheet.

In other words, they are expensed in the period incurred and appear on the income statement.

Period Costs (Non-inventoriable)

- are all other indirect costs that are incurred in production.

- are not assigned to one particular product or the cost of inventory like product costs.
- overhead and sales and marketing expenses are common examples of period costs.
28. Maritime Company manufactures and sells Widget Q. For the year 2012, the cost of goods sold of Maritime Company was P350,000. During the year, the
work-in process inventory increased by P42,000 and the finished goods inventory decreased by P95,000. The total manufacturing costs incurred by Maritime
Company in 2012 were

a. P213,000
b. P297,000
c. P350,000
d. P403,000

*Solution:

297,000 - Total Manufacturing Costs

(+) 0 – Beg. Work in Process Inventory

297,000 - Total Cost of Work in Process

(-) 42,000 - End. Work in Process Inventory

255,000 - Cost of Goods Manufactured

(+) 95,000 - Beg. Finished Goods Inventory

350,000 - Total Goods Available for Sale

(-) 0 - End. Finished Goods Inventory

350,000 - Cost of Goods Sold

A prime cost is the total direct costs of production, including raw materials and labor.

Indirect costs, such as utilities, manager salaries, and delivery costs, are not included in prime costs.

Prime Costs

- are expenditures directly related to creating finished products.

- include direct material and direct labor costs.
23. Wheel and Tire Manufacturing currently produces 1,000 tires per month. The following per unit data apply for sales to regular customers:

Direct materials P20

Direct manufacturing labor 3

Variable manufacturing overhead 6

Fixed manufacturing overhead 10

Total manufacturing costs P39

The plant has capacity for 3,000 tires and is considering expanding production to 2,000 tires. What is the total cost of producing 2,000 tires?

a. P39,000
b. P78,000
c. P68,000
d. P62,000

*Solution:

DM (P20 x 2,000 units) + DL (P3 x 2,000 units) + VOH (P6 x 2,000 units) + FOH (P10 x 1,000 units) = P40,000 + P6,000 + P12,000 + P10,000 = P68,000

38. A hotel has recorded that the costs incurred were P570 when 340 guests stayed for one night. They know that the fixed laundry cost is P400 per night. What
is the variable laundry cost per guest-night (to the nearest cent)?

a. P 0.50
b. P 1.18
c. P 1.68
d. None of the above

*Solution:

Y = total cost a = fixed cost

b = variable cost per unit x = activity level

Formula: Y = a + bx

P570 = P400 + b(340 guests)

P570 = P400 + 340b

340b = P400 – P570

340b = -P170
340 340

b = P0.50