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. 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. 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

QUes 1

First let us understand the concept of period and product cost it will help you understand the second answer as well

period cost & product costs are both costs incurred to bring the raw material to a condition where it can be sold meaning simply both costs are incurred for my product saleability but the difference lies that the product costs can be individually identified to a product whereas period cost cannot be

with this concept lets answer:

1.Depreciation on salespersons' cars. (product cost)
2.Rent on equipment used in the factory. (period 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. (period cost)
6.Factory supervisors' salaries. (period 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. (period 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. (product 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)

Ques 2:

we have already defined the products costs in ques 1

variable costs are those costs which change with increase in production of units

fixed costs remain same overall but changes per unit

Cost Item Cost Behavior Cost
1.Hamburger buns in a Wendy's outlet. Variable Product cost
2.Advertising by a dental office.Fixed Selling and administrative cost
3.Apples processed and canned by Del Monte.Variable Product cost
4.Shipping canned apples from a DelMonte plant to customers.Variable Selling and administrative cost
5.Insurance on a Bausch & Lombfactory producing contact lenses.Fixed Product cost
6.Insurance on IBM's corporate headquarters.Fixed Selling and administrative cost
7.Salary of a supervisor overseeing productionof printers at Hewlett Packard.Fixed Product cost
8.Commissions paid to Encyclopedia Britannica salespersons.Variable Selling and administrative cost
9. Depreciation of factory lunchroom facilitiesat a General Electric plant.Fixed Product cost
10. Steering wheels installed in BMWs.Variable Product cost