EA4.

LO 2.2Hicks Contracting collects and analyzes cost data in order to track the cost of installing decks on new home construction jobs. The following are some of the costs that they incur. Classify these costs as fixed or variable costs and as product or period costs.

Lumber used to construct decks ($12.00 per square foot)

Carpenter labor used to construct decks ($10 per hour)

Construction supervisor salary ($45,000 per year)

Depreciation on tools and equipment ($6,000 per year)

Selling and administrative expenses ($35,000 per year)

Rent on corporate office space ($34,000 per year)

Nails, glue, and other materials required to construct deck (varies per job)

There is the relation between the variable cost and the product cost & fixed cost and the period cost

The product cost is that cost which is used to make the product. It includes direct material, direct labor, and the manufacturing overhead

In mathematically,

Product cost = Direct material + direct labor + manufacturing overhead

The period cost is that cost which remain fixed and is incurred when the time passes

Period cost = Salaries of sales person + delivery trucks depreciation + Repairs to office equipment + Advertising expense + usage of office supplies expense

So, the categorization is shown below:

Lumber used to construct decks ($12.00 per square foot) = Variable cost and Product cost

Carpenter labor used to construct decks ($10 per hour) = Variable cost and Product cost

Construction supervisor salary ($45,000 per year) = Fixed cost and the period cost

Depreciation on tools and equipment ($6,000 per year) = Fixed cost and the period cost

Selling and administrative expenses ($35,000 per year) = Fixed cost and the period cost

Rent on corporate office space ($34,000 per year) = Fixed cost and the period cost

Nails, glue, and other materials required to construct deck (varies per job) =

Variable cost and Product cost