In an August 8. 2005. Business Week article, authors David Welch and Michael Arndt discuss how companies are using-bankruptcy to alter their cost structures. The article, titled “Bankruptcy is Delphi’s Trump Card.” says that Steve Miller. Jr., was hired to be Delphi’s chairman by the board of directors in order to manage the financially troubled firm. Miller’s history of managing troubled firms includes reducing costs, particularly those costs related to overhead. In particular, Delphi was having difficulty funding its pension and health benefit obligations to its 12,000 union retirees, said to total approximately $9 billion.
Instructions
Write a short paragraph that explains why pension and health benefits are classified as product costs and not period costs. Also explain why these benefits are classified as manufacturing overhead costs rather than direct labor.
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