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 it finance its growth. The bank requires financial statements before approving such a loan. You have been asked to help prepare the financial statements and were given the following list of costs:
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.

Required:

Classify the above costs as either product costs or period costs for the purpose of preparing the financial statements for the bank.

Answer 1

Answer:

Product Costs :

2. Rent on equipment used in the factory.

3. Lubricants used for machine maintenance.

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.

10. Workers compensation insurance for factory employees.

11. Depreciation on chairs and tables in the factory lunchroom.

15. The cost of packaging the company`s product.

Period Costs :

1. Depreciation on salespersons cars.

4. Salaries of personnel who work in the finished goods warehouse.

8. Materials used for boxing products for shipment overseas.

9. Advertising costs.

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.

Explanation:

Product Costs are Costs attached to Product and Included in Valuation.

Period Costs are Not Attached to Products and are expended in Income Statement during the Period in which they are incurred.