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Explain how each part was solved

and why?

A review of the accounting records of Rooney Manufacturing indicated that the company incurred the following payroll costs during the month of March. Assume the companies financial statements are prepared in accordance with GAAP 1. Salary of the company president-$32,000. 2. Salary of the vice president of manufacturing-$17,000 3. Salary of the chief financial officer-$18,900. 4. Salary of the vice president of marketing-$16,300. 5. Salaries of middle managers (department heads, production supervisors) in manufacturing plant-$196,000. 6. Wages of production workers $939,000. 7. Salaries of administrative secretaries-$104,000. 8. Salaries of engineers and other personnel responsible for maintaining production equipment-$180,000 9. Commissions paid to sales staff $255,000. Required a. What amount of payroll cost would be classified as SG&A; expense? b. Assuming that Rooney made 3,200 units of product and sold 2,560 of them during the month of March, determine the amount of payroll cost that would be included in cost of goods sold. (Do not round intermediate calculations.) a. Payroll cost to be included in SG&A; cost b. Payroll cost to be included in cost of goods sold

Solution

A. Selling, General & Administrative Expense are those which are not traceable to sale of each product.In other words these expenses do not form part of COGS.When an SG&A cost is considered a direct cost, it is acceptable to shift the cost into the cost of goods sold classification on the income statement.

In the given Question, it is also acceptable to move commission paid to sales staff to COGS since it may be directly related to the sale of particular product.

The following Payroll cost would be classified as SG&A expense.

Total SG&A payroll cost is $426,200   

B.COGS include those costs which are incurred in relation to manufacturing or production of goods. It includes direct labor costs of workers who produce the goods and factory overhead i.e. the costs which are ancilliary to produce the goods.

Payroll Cost which are included for COGS

Total Payroll Costs    $1,332,000

Payroll Cost to be included in COGS = ($1,332,000 / 3200) *2560 = $1,065,600