Question

4) Identify product costs and period costs (Learning Objective PEZ Candy Inc. produces the S2-6 popular small candy that is dispensed in collectible flip-top ers. In the United St n the United States, PEZ candies are produced in a factory in Conn ispens The Connecticut location also houses PEZ's U.S. headquarters and a PEZ Visitors Center PEZ candy is made from sugar, fruit flavoring, coloring, and corn syrup; the ingredients e put under pressure to form the hard tablets. About 95% of a PEZ tablet is sugar. The PEZ dispensers are popular with collectors: there are several PEZ collector conventions throughout the world In 2011, PEZ Candy Inc. opened a 6,000-square-foot Visitors Center in Connecticut The Visitors Center houses the world's largest collection of PEZ memorabilia on public display. Visitors can also view the factory through special viewing windows. The center o has a touch-screen PEZ trivia game and interactive reviews of PEZ history. Birthday party packages are also offered in the Visitors Center: partygoers receive goodie bags that include a blank customizable PEZ dispenser, PEZ candy, a PEZ lanyard, and discount coupons Requirements 1. Is the cost of sugar in PEZ candies a product or a period cost? What about the wrap- pers that the candy is packaged in? 2. Is the cost of quality control testing in the manufacturing process for PEZ candies a product or a period cost? 3. Is the cost of the labor to make PEZ candy in the factory a product or a period cost? What about the cost of the benefits (i.e., health care, payroll taxes, vacation pay) for those workers? 4. Is the cost of staffing the PEZ Visitors Center a product or a period cost? What about the cost of the benefits (i.e., health care, payroll taxes, vacation pay) for those workers o work in the Visitors Center? Assume that PEZ purchased the touch-screen PEZ trivia game from a custom video game developer. Is the cost of that game a product or a period cost? What about the costs of maintaining and updating the software and hardware for the game? s. ó. ls food cost for a birthday party in the PEZ Visitors Center a product or a period cost? What about the cost of the items included in the goodie bags?

Answer 1

1. Both the cost of sugar and wrappers are product cost.

2. The cost of quality control is product cost, as quality control is also a part of the manufacturing process. The products are not ready for sale unless they go through quality control.

3. The cost of labor to make PEZ candy is direct labor cost, and hence is product cost. The cost of their benefits is also product cost.

4. The cost of staffing the PEZ Visitors Center and the benefits associated with the workers in the Visitors Center are period expenses.

5. The cost of the trivia game is a product cost, and is accordingly capitalized. However, the cost of maintenance is period expense. The costs of updating the software and hardware are product costs.

6. The food cost and the cost of items in the goodie bags are also product cost, if each birthday party is viewed as a cost center.