All of Eva Enterprise's operations are housed in one building with the costs of occupying the building accumulated in a separate account. The total costs incurred in July amounted to $48,000. The company allocates these costs on the basis of square feet of floor space occupied. Administrative offices, sales offices, and factory operations occupy 9,000, 6,000, and 30,000 square feet, respectively. How much will be classified as a product cost for July?
A)$9,600
B)$6,400
C)$16,000
D)$32,000

Question

Quizplus · Accepted Answer

Product costs are the costs directly associated with the production of goods. In this scenario, the factory operations, which occupy 30,000 square feet, are directly involved in the production of goods. The total area occupied by all operations is 45,000 square feet (9,000 + 6,000 + 30,000). The cost per square foot is $48,000 / 45,000 = $1.067 per square foot. Therefore, the product cost for the factory operations is 30,000 square feet * $1.067 per square foot = $32,000.

All of Eva Enterprise's Operations Are Housed in One Building