Case 2-63 Cost Classification, Income Statement

Details An account shows: Gateway Construction Company Income Statement For the Year Ended December 31, 2017- Sales (18,200 equipment hours @ $165 per hour) $3,003,000 Less expenses: Utilities $ 24,000, Machine operators 218,000, Rent, office building 24,000, CPA fees 20,000, Other direct labor 265,700 Administrative salaries 114,000, Supervisory salaries 70,000, Pipe 1,401,340, Tires and fuel 418,600 Depreciation, equipment 198,000, Salaries of mechanics 50,000, Advertising 15,000, Total expenses 2,818,640, Operating income $ 184,360. Required: 1. Classify the costs in the income statement as (1) costs of laying pipe (production costs), (2) costs of securing contracts (selling costs), or (3) costs of general administration. For production costs, identify direct materials, direct labor, and overhead costs. The company never has significant work in process (most jobs are started and completed within a day). 2. Assume that a significant driver is equipment hours. Identify the expenses that would likely be traced to jobs using this driver. Explain why you feel these costs are traceable using equipment hours. What is the cost per equipment hour for these traceable costs?