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Here is the complete question:
Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help its finance its growth. The bank requires financial statements before approving such a loan. You have been asked to help prepare the financial statements and were given the following list of costs:
1. Depreciation on salespersons cars.
2.Rent on equipment used in the factory
3.Lubricants used for machine maintenance
4. Salaries of personnel who work in the finished goods warehouse
5.Soap and paper towels used by factory workers at the end of a shift.
6.Factory supervisors salaries
7.Heat, water, and power consumed in the factory
8.Materials used for boxing products for shipment overseas. (Unites are not normally boxed)
9.Workers compensation insurance for factory employees
sales conference
10 depreciation on chairs and tables in the factory lunchroom
11.The wages of the receptionist in the administrative offices
12.Cost of leasing the corporate jet used by the company’s executives
13.The cost of renting rooms at a Florida resort for the annual 1. Depreciation on salespersons cars.
14.The cost of packaging the company’s product.
15. Advertising cost
Required: Classify the above cost as either product cost or period costs for the purpose of preparing the financial statements for the bank.
Here is the answer:
Transaction Cost
1. Depreciation on salespersons cars. Period
2.Rent on equipment used in the factory Product
3.Lubricants used for machine maintenance Product
4. Salaries of personnel who work in the Period
finished goods warehouse
5.Soap and paper towels used by factory workers Product
at the end of a shift.
6.Factory supervisors salaries Product
7.Heat, water, and power consumed in the factory Product
8.Materials used for boxing products for Period
shipment overseas. (Unites are not normally boxed)
9.Workers compensation insurance Product
for factory employees
10 depreciation on chairs and tables Product
in the factory lunch room
11.The wages of the receptionist in the Period
administrative offices
12.Cost of leasing the corporate jet used Period
by the company’s executives
13.The cost of renting rooms at a Florida resort for Period
the annual sales conference
14.The cost of packaging the company’s product. Product
15. Advertising cost Period
Explanation:
Those costs that are incurred in the process of producing goods are called period cost. These costs include direct wages cost, direct material cost and factory overheard. This factory overheard consist of indirect expenses incurred in production of goods.
On the other hand, period cost are incurred not directly for production of goods but mostly for the general administration, distribution and marketing of good. Period costs include sales and distribution expenses, finance cost, etc.
