![Exercise 1-3 Classifying Costs as Product or Period Costs [LO1-3] 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 finance its growth. The bank requires financial statements before approving the loan. Required: Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank. Costs Product Cost/ Period Cost 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 Factory supervisons salaries 7. Heat, water, and power consumed in the factory 8. Materials used for boxing products for shipment overseas (Units are not normally boxed.) 9. Advertising costs 10. Workers compensation insurance for factory employees. 11. Depreciation on chairs and tables in the factory lunchroom 12. The wages of the receptionist in the administrative offices 13. Cost of leasing the corporate jet used by the companys executives 14. The cost of renting rooms at a Florida resort for the annual sales conference 15. The cost of packaging the companys product](http://img.homeworklib.com/questions/87149350-6f26-11ea-828f-4123ab1c88ef.png?x-oss-process=image/resize,w_560)
Homework Answers
1-3)Product cost is a cost that is incurred to manufacture a product and is added to cost of product whereas period cost has no relation to manufacturing of product and is charged to income statement in the period it is incurred(that is not added to cost of product)
| serial no. | Reason | |
| 1 | Period | (no relation to manufacturing) |
| 2 | product | since equipment is used in factory for manufacturing purpose |
| 3 | product | lubricants cost is a factory overhead cost incurred to support manufacturing process |
| 4 | period | no relation to manufacturing |
| 5 | product | factory overhead cost incurred to support manufacturing process |
| 6 | product | factory overhead cost incurred to support manufacturing process |
| 7 | product | factory overhead cost incurred to support manufacturing process |
| 8 | period | shipping cost incurred after the product is manufactured and ready for sale. |
| 9 | period | cost after product is manufactured |
| 10 | product | factory overhead cost incurred to support manufacturing process |
| 11 | Product | factory overhead cost incurred to support manufacturing process |
| 12 | period | cost after product is manufactured |
| 13 | period | no relation to manufacturing process |
| 14 | period | no relation to manufacturing process |
| 15 | product | cost incurred to make product ready for sale |
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