Question

A review of the accounting records of Spiller Manufacturing indicated that the company incurred the following payroll costs during the month of September.
1. Salary of the company president $40,000.
2. Salary of the vice president of manufacturing $25,000.
3. Salary of the chief financial officer $20,000.
4. Salary of the vice president of marketing $18,000.
5. Salaries of middle managers (department heads, production supervisors) in manufacturing plant $196,000.
6. Wages of production workers $938,000.
7. Salaries of administrative secretaries $60,000.
8. Salaries of engineers and other personnel responsible for maintaining production equipment $178,000.
9. Commissions paid to sales staff $252,000.
Required:
a. What amount of payroll cost would be classified as selling, general, and administrative expense?
b. Assuming that Spiller made 4,000 units of product and sold 3,600 of them during the month of September, determine the amount of payroll cost that would be included in cost of goods sold.

Answer 1

Answer:

Spiller Manufacturing

a) Selling, General, and Administrative Expense:

1. Company President's                   $40,000

3. Chief Financial Officer                $20,000

4. Vice president, marketing           $18,000

7. Administrative secretaries          $60,000

9. Sales Commission                    $252,000

Total                                              $390,000

b) Payroll cost to be included in the cost of goods sold:

2. Vice president of manufacturing    $25,000

5. Middle managers, manufacturing $196,000

6. Production workers                       $938,000

7. Engineers & others, maintenance $178,000

Total Manufacturing payroll          $1,337,000

Unit Manufacturing Payroll cost = $1,337,000/4,000 = $334.25

Payroll cost to be included in the cost of goods sold = $334.25 x 3,600 = $1,203,300.

Explanation:

Payroll costs (employees costs) include the expenses incurred for labor.  The labor cost may be for manufacturing, selling, general, and administrative functions.