Classification of Product and Period Costs Classify the foll

Classification of Product and Period Costs Classify the following costs incurred by a manufacturer of golf clubs as product costs or period costs. Also Classify the product costs as direct materials or conversion costs.

Solution

Here if entire use of the cost is consumed withing current accounting year, then it is called period cost alway, so based on this ruling, this classification will be done as :

Product cost    :   (d) ,( g) ( j) (l) (n)

Period cost : (a),(b), (c), (e) ,(h)(i) , (k), (m),(f), (o)

Now these period costs are further classified as direct meterial and conversion costs as :

Direct meterial : Represents the cost of the materials that can be identified directly with the product at reasonable cost. For example, cost of paper in newspaper printing. So it is (f), (c), (e)

Converion cost : Conversion costs are all costs incurred to convert the raw materials to finished products and they equal the sum of direct labor, other direct costs (a),(b),(h)(i) , (k), (m), (o)