Question

For apparel manufacturer Abercrombie & Fitch, Inc., classify each of the following costs as either a product cost or a period cost:
Item Classification
a. Research and development costs _____
b. Depreciation on sewing machines _____
c. Fabric used during production _____
d. Depreciation on office equipment _____
e. Advertising expenses _____
f. Repairs and maintenance costs for sewing machines _____
g. Salary of production quality control supervisor _____
h. Utility costs for office building _____
i. Sales commissions _____
j. Salaries of distribution center personnel _____
k. Wages of sewing machine operators _____
l. Factory janitorial supplies _____
m. Chief financial officer's salary _____
n. Travel costs of media relations employees _____
o. Factory supervisors' salaries _____
p. Oil used to lubricate sewing machines _____
q. Property taxes on factory building and equipment _____

Answer 1

Answer:

a. Research and development costs: Period cost because it is an administrative expenses.

b. Depreciation on sewing machines: Product cost because it is a manufacturing overhead.

c. Fabric used during production: Product cost because it is a direct raw material.

d. Depreciation on office equipment Period cost because it is an administrative expense.

e. Advertising expenses: Period cost because it is a sales expenses.

f. Repairs and maintenance costs for sewing machines: Product cost because it is a manufacturing overhead.

g. Salary of production quality control supervisor: Product cost because it is a manufacturing overhead.

h. Utility costs for office building: Period cost because it is an administrative expenses.

i. Sales commissions: Period cost because it is a sales expenses.

j. Salaries of distribution center personnel: Period cost because it is a sales expenses.

k. Wages of sewing machine operators: Product cost because it is a direct labor.

l. Factory janitorial supplies: Product cost because it is a manufacturing overhead.

m. Chief financial officer's salary: Period cost because it is an administrative expenses.

n. Travel costs of media relations employees: Period cost because it is a sales expenses.

o. Factory supervisors' salaries: Product cost because it is a manufacturing overhead.

p. Oil used to lubricate sewing machines: Product cost because it is a manufacturing overhead.

q. Property taxes on factory building and equipment: Product cost because it is a manufacturing overhead.

Explanation:

In Business management, cost can be defined as the amount of money paid in acquiring goods and services as well as the amount spent by the manufacturer in order to produce the goods or provide the service to the consumers. In production, these cost incurred by the manufacturer can be classified into two (2) categories and these are;

1. Product cost: is defined as all the cost incurred during the production or manufacturing of a company's product. Examples of these costs are direct labor cost, direct materials cost, and manufacturing overhead cost.

2. Period cost: is defined as all indirect costs associated with the smooth operation of a business. Examples of these costs are utility bills, rent, office supplies and depreciation, advertising costs etc.