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:
- 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 1

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.