Question

Identify the following costs into either being product cost or period cost:

A. Wages incurred in producing products
B. Leasing expense for forklift trucks in warehouse operation
C. Material handling cost related to production
D. Raw material costs
E. Fire insurance premium paid on factory buildings
F. Salary paid for plant manager
G. Interest expenses on borrowed funds
H. Salary paid for engineers
I. Income taxes paid
J. Electric bill for the warehouse operation

Answer 1

Product costs are the costs involved in producing a product. Period cost of the firm are general and administrative expenses of the firm and thus are not directly related to the production of the firm.

A. Wages incurred in producing products- Product cost. Since this is the direct cost paid to the labor for producing the product, thus it is a part of product cost of the firm.

B. Leasing expense for forklift trucks in warehouse operation- It is a part of general and administrative expenses of the firm and thus not directly tied to production of the firm and thus is a period cost.

C.Material handling cost related to production- It refers to the cost associated with movement, protection, storage and control of materials and products through manufacturing, warehousing etc. Since it is related to production of goods and thus it is a product cost.

D. Raw material costs- This cost is directly associated with the production of a good or service and thus raw material cost is a product cost.