INCOME STATEMENT, DIRECT AND INDIRECT COST CONCEPTS, SERVICE COMPANY

Janine Wellington owns and operates a package mailing store near a university. Her store, Send ‘n' Deliver, helps customers wrap items and send them via UPS, FedEx, and Canada Post. Send ‘n' Deliver also rents mailboxes to customers by the month. In May, purchases of materials (stamps, cardboard boxes, tape, Styrofoam peanuts, bubble wrap, etc.) equalled $11,450; the beginning inventory of materials was $1,050, and the ending inventory of materials was $950. Payments for direct labour during the month totalled $5,570. Overhead incurred was $8,130 (including rent, utilities, and insurance, as well as payments of $4,050 to UPS and FedEx for the delivery services sold). Since Send ‘n' Deliver is a franchise, Janine owes a monthly franchise fee of 5 percent of sales. She spent $750 on advertising during the month. Other administrative costs (including accounting and legal services and a trip to Calgary for training) amounted to $3,650 for the month. Revenues for May were $36,100.

Required:

1. What was the cost of materials used for packaging and mailing services during May?

2. What was the prime cost for May?

3. What was the conversion cost for May?

4. What was the total cost of services for May?

5. Prepare an income statement for May.

6. Of the overhead incurred, is any of it direct? Indirect? Explain.