Bressette Corporation has provided the following information:

Cost per Unit Cost per Period
Direct materials $ 6.20
Direct labor $ 3.70
Variable manufacturing overhead $ 1.25
Fixed manufacturing overhead $ 10,000
Sales commissions $ 1.50
Variable administrative expense $ 0.50
Fixed selling and administrative expense $ 5,000

For financial reporting purposes, the total amount of product costs incurred to make 5,000 units is closest to:

Question

Bressette Corporation has provided the following information:

Cost per Unit	Cost per Period
Direct materials	$ 6.20	 
Direct labor	$ 3.70	 
Variable manufacturing overhead	$ 1.25	 
Fixed manufacturing overhead	 	$ 10,000
Sales commissions	$ 1.50	 
Variable administrative expense	$ 0.50	 
Fixed selling and administrative expense	 	$ 5,000

For financial reporting purposes, the total amount of product costs incurred to make 5,000 units is closest to:

BlackTom AI · Accepted Answer

Product costs under financial reporting (absorption costing) consist of all manufacturing costs: direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead. Selling and administrative costs (both variable and fixed) are period costs and are not included in product costs.

1) Relevant concepts
- Product (inventoriable) costs = DM + DL + variable MOH + fixed MOH (absorption costing for financial reporting).
- Period costs = selling and administrative expenses (commissions, variable admin, fixed S&A) — excluded from product cost.

2) Step-by-step reasoning
- Compute total variable manufacturing cost per unit by summing the manufacturing per-unit amounts.
- Multiply per-unit variable manufacturing cost by number of units (5,000) to get total variable manufacturing cost.
- Add total fixed manufacturing overhead (period amount given) to obtain total product cost for the 5,000 units.

3) Calculations (all intermediate steps)
- Per-unit manufacturing variable cost = Direct materials + Direct labor + Variable manufacturing overhead
  = $6.20 + $3.70 + $1.25 = $11.15 per unit.
- Total variable manufacturing cost for 5,000 units = $11.15 × 5,000 = $55,750.
- Add fixed manufacturing overhead = $10,000.
- Total product cost = $55,750 + $10,000 = $65,750.

4) Why this is correct
Fixed manufacturing overhead is part of product cost under GAAP/absorption costing, so it must be included. Selling commissions, variable administrative expense, and fixed selling & administrative expense are period (selling & admin) costs and therefore excluded from product cost.

5) Why the other options are incorrect
- $55,750: equals only the variable manufacturing costs (omits fixed manufacturing overhead of $10,000), so incomplete.
- $10,000: equals only the fixed manufacturing overhead, ignoring all per-unit manufacturing costs.
- $70,750: equals $65,750 plus fixed selling & administrative expense ($5,000) — incorrectly includes a period cost as a product cost.

6) Conclusion
The total product cost to make 5,000 units is $65,750, which matches the provided correct answer.

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