Lagle Corporation has provided the following information:

Cost per Unit Cost per Period

Direct materials $ 4.75

Direct labor $ 3.70

Variable manufacturing overhead $ 1.45

Fixed manufacturing overhead $ 18,200

Sales commissions $ 1.70

Variable administrative expense $ 0.55

Fixed selling and administrative expense $ 4,800

For financial reporting purposes, the total amount of period costs incurred to sell 7,000 units is closest to:

a.$15,750

b.$20,550

c.$18,200

d. $4,800

b.$20,550

Explanation:

The period costs are those costs which include costs for a particular period. The calculation for these costs differ under the two methods absorption and variable. Under absorption Costing the Period costs include Variable selling and administrative + Fixed selling and administrative expenses.

Lagle Corporation

Absorption Costing

Direct materials $ 4.75 * 7000 = $ 33250

Direct labor $ 3.70 * 7000 = $ 25900

Variable manufacturing overhead $ 1.45 * 7000 = $ 10150

Fixed manufacturing overhead $ 18,200

Total Product costs $ 87,500

Sales commissions $ 1.70 * 7000=$ 11900

Variable administrative expense $ 0.55 * 7000 = $ 3850

Fixed selling and administrative expense $ 4,800

Total Period Costs $ 20550

Mostly Absorption costing is used for daily basis. Therefore Choice b is the best option.

Under variable costing the Period costs include Fixed manufacturing overheads + Fixed selling and administrative expenses.

Lagle Corporation

Variable Costing

Direct materials $ 4.75 * 7000 = $ 33250

Direct labor $ 3.70 * 7000 = $ 25900

Variable manufacturing overhead $ 1.45 * 7000 = $ 10150

Sales commissions $ 1.70 * 7000=$ 11900

Variable administrative expense $ 0.55 * 7000 = $ 3850

Total Product costs $ 85,050

Fixed selling and administrative expense $ 4,800

Fixed manufacturing overhead $ 18,200

Total Period Costs $ 23000