Requirement 2 For a manufacturing company identify the follo

Requirement 2. For a manufacturing company, identify the following as either an inventoriable product cost or a period cost. If it is an inventoriable product cost, classify it as direct materials, direct labor, or manufacturing overhead. (If the cost is a period cost, leave the second column blank.) a. Depreciation on plant equipment b. Depreciation on salespeoples automobiles Insurance on plant building

Solution

INVENTORIABLE COSTS : This includes cost incurred to obtain inventory items. These cost also are considered to be the cost of the product. It has further three items
* direct material
* direct labour
* manufacturing overhead

PERIOD COST : Cost which is more likely to be incured over the passage of time. for example adminstration expenses like rent, office depreciation, utilities etc.

ANSWER

DEPRECIATION ON PLANT EQUIPMENT : Inventoriable cost ( manufacturing overhead ) because depreciation cost is related to equipment or product. it depreciate over a period of time but it is related to product cost.

DEPRECIATION ON SALESPERSON AUTOMOBILE : Period cost ( it is a period cost because it is incurred periodically and automobile of salesperson is not considered as equipment.

INSURANCE ON PLANT BUILDING : : Period cost ( it is a period cost because it is incurred periodically annually)