Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy camer
as 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: - Depreciation on salespersons cars.
Rent on equipment used in the factory
- Lubricants used for machine maintenance
- Salaries of personnel who work in the finished goods warehouse
- Soap and paper towels used by factory workers at the end of a shift.
- Factory supervisors salaries
- Heat, water, and power consumed in the factory
- Materials used for boxing products for shipment overseas. (Unites are not normally
- Advertising cost
- Workers compensation insurance for factory employees
- Depreciation on chairs and tables in the factory lunchroom
- The wages of the receptionist in the administrative offices
- Cost of leasing the corporate jet used by the company’s executives
- The cost of renting rooms at a Florida resort for the annual sales conference
- The cost of packaging the company’s product.
Required:
Classify the above cost as either product cost or period costs for the purpose of preparing the financial statements for the bank.
Answer:PRODUCT COSTS include; (1) Soap and paper towels used by factory workers in a shift(2) Heat, water and power consumed in the factory(3) Materials used for boxing products for shipments overseas (4) Workers compensation insurance for factory employees (5) cost of packaging the company's products(6) Rent on equipment used in the factory (7) Lubricants used for machine maintenance (8) Factory supervisors salaries.
While PERIOD COSTS include (1) Depreciation on sales persons cars (2) Salaries of personnel who work in the finished goods warehouse (3) Advertising costs (4) depreciation on chairs and tables in the factory lunch room (5) Wages of the receptionist in the administrative offices (6) Cost of leasing the corporate jet used by the company's executives (7) Cost of renting rooms at Florida Resort for the annual sales conference.
Explanation:
Product costs are those direct costs incurred in the production of a commodity for example, direct labour, direct materials etc while Period costs is any cost associated with passage of time. It is incurred whether production is in process or not.
The correct answer is accrual of interest expense.
Explanation:
Interest expense is an expense you incur when you borrow money. The lender charges you a specific interest rate that is expressed in your loan document. As time passes, you are charged interest on the amount you borrowed. You may have to calculate the simple or compound interest on your loan depending on how it is structured. If the loan is for business, you will enter interest expenses in your accounting records.
If the European Union put a quota on American jeans only allowing a small portion to be imported the demand for the jeans would rise even though the supply would not follow that. When there is a small limit on something that consumers want, the price usually goes up because they know they will sell the items regardless and in this case that may happen. The price of jeans will rise, the demand will rise, but the supply will not.
