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 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. Product Cost / Period Cost 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. (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 company's executives. 14. The cost of renting rooms at a Florida resort for the annual sales conference. 15. The cost of packaging the company's product

Answer 1

Depreciation on salespersons cars: Period Cost
Rent on equipment used in the factory: Product Cost
Lubricants used for machine maintenance: Product Cost
Salaries of personnel who work in the finished goods warehouse: Period Cost
Soap and paper towels used by factory workers at the end of a shift: Product Cost
Factory supervisor's salaries: Product Cost
Heat, water and power consumer in the factory: Product Cost
Materials used for boxing products for shipment overseas: Period Cost
Advertising cost: Period Cost
Workers compensation insurance for factory employees: Product Cost
Depreciation on chairs and tables in the factory lunchroom: Product Cost
The wages of the receptionist in the administrative offices: Period Cost
Cost of leasing the corporate jet used by the company’s executives: Period Cost
The cost of renting rooms at a Florida resort for the annual sales conference: Period Cost
The cost of packaging the company's product: Product Cost