Question

1. Identify the following costs as product or period costs by placing on"X" Product Period Oil for the factory machines Direct material Commissions on sales Rent of office space Direct labor Insurance on the administration building Repairs on factory machine Power for the factory Indirect material for factory Customer relations Distribution costs (shipping) 2. What is the difference between product and period costs? Why do we care? 3. Can you provide other name for the term product costs?

Answer 1

1)

1	Oil for the factory machines	Product cost
2	Direct material	Product cost
3	Commissions on sales	Period cost
4	Rent of office space	Period cost
5	Direct labor	Product cost
6	Insurance on the administration building	Period cost
7	Repairs on factory machine	Product cost
8	Power for the factory	Product cost
9	Indirect material for factory	Product cost
10	Customer relations	Period cost
11	Distribution costs (shipping)	Period cost

　

2) The product costs are included as inventory's part and are charged against revenues as cost of sales only at the time these are sold. Thus the costs which become part of the cost of goods manufactured are termed product costs. On contrary the period costs are charged immediately against revenue.

3) The product costs are also known as "inventoriable" costs because these are necessary manufacturing costs for the products.