Requirement 1. Describe the difference between period costs and product costs. Period costs are operating costs that are expensed in the accounting period in which they are incurred. Product costs are all costs of a product that GAAS requires companies to treat as an asset for extemal financial reporting. These costs are recorded as an asset (inventory) on the balance sheet until the asset is sold. The cost is then transferred to an expense accountCost of Goods Manufactured on the income statement. is subtracted from Sales Revenue to determine gross proft. The operating costs are then On the income statement, Cost of Goods Sold subtracted to determine operating income. Requirement 2. Classify Lawlor\'s costs as period costs or product costs. If the costs are product costs, further classify as direct materials, direct labor, or Shaft and handle of weed trimmer Motor of weed trimmer Factory labor for workers assembling weed trimmers Nylon thread used by the weed trimmer (not traced to the product) Glue to hold housing together Plant janitorial wages Depreciation on factory equipment Rent on plant Sales commissions Administrative salaries Plant utilities Shipping costs to deliver finished weed trimmers to customers Direct materials Direct materials Direct labor Manufacturing overhead Manufacturing overhead Manufacturing overhead Manufacturing overhead Manufacturing overhead Period costs Period costs Manufacturing overhead Period costs
Requirement 1
Period Costs are operating costs that are expensed in the accounting period in which they are incurred.
Product Costs are all the cost of a product that GAAP requires companies to treat as an asset for external financial reporting. These costs are recorded as an asset (inventory) on the balance sheet until the asset is sold. The cost is then transferred to an expense account (Cost of Goods Sold) on the income statement. Product costs include direct materials, direct labour, and manufacturing overhead.
On the income statement, Cost of Goods Sold ( product Cost ) is subtracted from Sales Revenue to determine gross profit. The period costs are then subtracted from gross profit to determine operating income.
Requirement 2
Direct Materials
Direct Materials
Direct labour
Manufacturing Overhead
Manufacturing Overhead
Manufacturing Overhead
Manufacturing Overhead
Manufacturing Overhead
Period Cost
Period Cost
Manufacturing Overhead
Period Cost
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