Question

5. The salary of the assembly shop's supervisor 6. The salary of the company's accountant. 7. Depreciation on equipment used to test assembled computers before release to customers. 8. Rent on the facility in the industrial park. 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 man factures 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 finan- cial statements for the bank. 1. Depreciation on salespersons' cars. 2. Rent on equipment used in the factory.

Answer 1

Solution:

Product Cost: Product costs are the costs incurred in the process of manufacturing a product.

Period Cost: Period costs are the costs incurred with the passage of time and they are not connected to any product.

1. Depreciation on salespersons’ cars – Period Cost
2. Rent on equipment used in the factory – Product Cost
3. Lubricants used for machine maintenance – Product Cost
4. Salaries of personnel who work in the finished goods warehouse – Period Cost
5. Soap and paper towels used by factory workers at the end of a shift – Product Cost
6. Factory supervisors’ salaries – Product Cost
7. Heat, water, and power consumed in the factory – Product Cost
8. Materials used for boxing products for shipment overseas (Units are not normally boxed) – Period Cost
9. Advertising Costs – Period Cost
10. Workers’ compensation insurance for factory employees – Product Cost
11. Depreciation on chairs and tables in the factory lunchroom – Product Cost
12. The wages of the receptionist in the administrative offices – Period Cost
13. Cost of leasing the corporate jet used by the company's executives – Period Cost
14. The cost of renting rooms at a Florida resort for the annual sales conference – Period Cost
15. The cost of packaging the company’s product – Product Cost