Managerial accounting?

Question

The Joshua Company has gathered the following information
Sales $124,000
Direct material used $25,800
Direct Labour 15,200
Fixed:
Factory overhead 12,400
Selling expences 4,200
Adminstrative expenses 8,600

Variable:
Factory overhead 6,600
Selling expenses 8,800
Adminstrative expenses 4,600
There were no beginning or ending inventories.Calculate the following
a. contribution margin
b. gross margin
c.total product cost
d.total period cost

Answer 1

a. Contribution margin = Revenues - COGS - Variable expenses
So CM = 124k - (25.8k + 15.2k + 12.4 + 6.6k) - 8.8k - 4.6k = 50.6k

b. Gross profit = Net sales - COGS
So GP = 124k - (25.8k + 15.2k + 12.4 + 6.6k) = 64k

Gross margin is expressed as Gross Profit as a % of net sales. So GM = 64/124*100 = 0.52%

We use the term "nonmanufacturing overhead costs" or "nonmanufacturing costs" to mean the Selling, Administrative & General (SG&A) expenses and Interest Expense. Under generally accepted accounting principles (GAAP), these expenses are not product costs. (Product costs only include direct material, direct labor, and manufacturing overhead.) Nonmanufacturing costs are reported on a company’s income statement as expenses in the accounting period in which they are incurred. Expressed another way, nonmanufacturing costs are not allocated to products via overhead rates since they are not included in the amounts reported as inventory on the balance sheet or in the cost of goods sold that is reported on the income statement.

The terms product and period as well as direct and indirect derive from the world of manufacturing. The goal is to produce an income statement that has a cost of goods sold, consisting of all product costs, segregated from selling, administrative and financial expenses, making up all the period costs. As a general rule, all manufacturing costs are product costs i.e., all costs incurred inside the factory are product costs. This includes the labor of all factory employees, including the Vice-President of
Manufacturing; all the materials and supplies that are used; the cost of trucking materials to the factory; insurance, light, rent and so on for the factory. It also includes things like cafeteria costs in the factory and the salaries of managerial accountants employed in the factory. All costs that are incurred in the business but outside the walls of the factory are period costs. The salaries of financial accountants, for instance, are period costs and part of administrative expenses.

c. Product costs = direct material, direct labor, and manufacturing overhead
So product costs = 25.8 +15.2 +12.4 +6.6 = 60k. It so happens that product costs = COGS cos there are no opening or closing inventory, otherwise they would not be the same.

d. Period costs are S,G & A expenses
So period costs = 4.2k + 8.6k +8.8k +4.6k = 26.2k