Watson Inc. is a manufacturing company operating in the southeastern United States. The company has three...

 

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Watson Inc. is a manufacturing company operating in the southeastern United States. The company has three primary product lines, as well as several "secondary" lines. The company's controller is in the process of preparing the annual financial statements and will need to classify the following cost objects as either product costs or period costs. For each of these costs, determine the amounts that will be considered product costs versus the amounts that will be considered period costs. A 1 Cost Object 1. Watson paid $2.5 million in interest costs for a new 2 debt issuance-the proceeds were used to fund the construction of a new manufacturing plant. 2. Payments to SE EMC, the utilities company which 3 provides both gas and electric to Watson, totaled $3.6 million for the year. 3. The invoice price for raw materials for the year totaled 4 $9,415,200, which included a discount of 2 percent off of the original purchase prices and freight-in of $7,200. 4. Watson spent $5.1 million on advertising costs during 5 the year, with $350,000 of the total representing the salaries of the staff in the promotions department. 5. Rent costs for several buildings located outside of the 6 company's main campus and used to manufacture secondary product lines totaled $7.2 million. 6. Salaries associated with staff members in Watson's 7 Human Resources and General Counsel departments totaled $5.9 million. 8 7. The company's factory workers at the main plant average an annual salary of $55,000 per year, with fringe benefits costing the company 15 percent of salary per worker. There are 50 factory workers at the main plant. 8. Watson also employs a custodial staff of 15 employees at its main plant; these employees earn an 9 average of $30,000 per year with fringe benefits costing the company on average 25 percent of labor costs for this group. B Product Costs Period Costs 123 123 123 123 123 123 123 123 123 123 123 123 123 123 123 123 Watson Inc. is a manufacturing company operating in the southeastern United States. The company has three primary product lines, as well as several "secondary" lines. The company's controller is in the process of preparing the annual financial statements and will need to classify the following cost objects as either product costs or period costs. For each of these costs, determine the amounts that will be considered product costs versus the amounts that will be considered period costs. A 1 Cost Object 1. Watson paid $2.5 million in interest costs for a new 2 debt issuance-the proceeds were used to fund the construction of a new manufacturing plant. 2. Payments to SE EMC, the utilities company which 3 provides both gas and electric to Watson, totaled $3.6 million for the year. 3. The invoice price for raw materials for the year totaled 4 $9,415,200, which included a discount of 2 percent off of the original purchase prices and freight-in of $7,200. 4. Watson spent $5.1 million on advertising costs during 5 the year, with $350,000 of the total representing the salaries of the staff in the promotions department. 5. Rent costs for several buildings located outside of the 6 company's main campus and used to manufacture secondary product lines totaled $7.2 million. 6. Salaries associated with staff members in Watson's 7 Human Resources and General Counsel departments totaled $5.9 million. 8 7. The company's factory workers at the main plant average an annual salary of $55,000 per year, with fringe benefits costing the company 15 percent of salary per worker. There are 50 factory workers at the main plant. 8. Watson also employs a custodial staff of 15 employees at its main plant; these employees earn an 9 average of $30,000 per year with fringe benefits costing the company on average 25 percent of labor costs for this group. B Product Costs Period Costs 123 123 123 123 123 123 123 123 123 123 123 123 123 123 123 123

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To classify the cost objects as either product costs or period costs we need to determine if the costs are directly associated with the production of ... View the full answer