If total warehousing cost for the year amounts to £350,000, and 40 per cent of the warehousing activity is associated with finished goods and 60 per cent with direct materials, how much of the cost would be charged as a product cost?
A)£70,000
B)£140,000
C)£210,000
D)£350,000

Question

Quizplus · Accepted Answer

Product costs include all costs involved in acquiring or making a product, which in this context includes both the costs associated with finished goods and direct materials. Since 40% of the warehousing activity is associated with finished goods and 60% with direct materials, totaling 100% of the warehousing activity, the entire warehousing cost of £350,000 would be considered a product cost. However, the question specifically asks for the amount charged as a product cost, which combines the portions for finished goods and direct materials. Therefore, the correct interpretation is to calculate the sum of the costs associated with these activities: 40% + 60% = 100% of £350,000, which indeed totals £350,000. However, the question seems to be asking for the split costs, which would be £140,000 for finished goods and £210,000 for direct materials, making the answer £210,000 if focusing on the highest cost component. The question's phrasing might lead to confusion, but based on the typical understanding of product costs encompassing both finished goods and direct materials, the total £350,000 is considered a product cost. The correct response based on the question's likely intent (asking for the split costs) and the options provided would be to focus on the direct materials cost, which is £210,000.

If Total Warehousing Cost for the Year Amounts to £350,000