Short Answer 
The answer outlines the distinction between product costs, which include direct materials, labor, and manufacturing overhead, and period costs, which relate to selling and administrative expenses. It explains how to calculate total product costs based on varying production levels and total period costs based on sales, demonstrating the fixed nature of product costs versus the sales-driven nature of period costs.
Step 1: Define Product and Period Costs
To properly calculate costs, it’s essential to understand the two main categories: product costs and period costs. Product costs involve expenses directly tied to manufacturing, including:
- Direct materials
- Direct labor
- Variable manufacturing overhead
- Fixed manufacturing overhead
Conversely, period costs encompass expenses like selling and administrative costs that are not related to production.
Step 2: Calculate Total Product Costs for Different Production Levels
To find the total product costs, multiply the per-unit costs by the number of units produced. For instance, with 20,000 units, the per-unit product cost is $17.50, leading to:
- Total for 20,000 units: $350,000
- At 22,000 units, variable costs increase, totaling $385,000 (including constant fixed manufacturing overhead).
This showcases how total product costs are calculated based on changes in production volume while fixed costs remain constant.
Step 3: Calculate Total Period Costs Based on Sales
For period costs, which are influenced by the number of units sold rather than produced, the calculation is based solely on the defined per-unit costs. For example, for 18,000 units sold:
- Total period costs = $135,000 (calculated using the per-unit period cost of $7.50).
This step is crucial in recognizing how period costs are consistent across different production levels as they are only related to sales activity.