Suppose that you have been given a summer job as an intern a

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 finance its growth. The bank requires financial statements before approving the loan Required: Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank.

Solution

Classification of cost into product or period cost:-

	Costs	Product Cost/Period Cost
1.	Depreciation on Salesperson\' cars	Period cost
2.	Rent on equipment used in the factory	Product cost
3.	Lubricants used for machine maintenance	Product cost
4.	Salaries of personnel who work in the finished goods warehouse.	Period cost
5.	Soap and paper towels used by factory workers at the end of a shift.	Product cost
6.	Factory supervisors\' salaries	Product cost
7.	Heat, water and power consumed in the factory	Product cost
8.	Materials used for boxing products for shipment overseas. (Units are not normally boxed)	Period cost
9.	Advertising costs	Period cost
10.	Workers\' compensation insurance for factory employees.	Product cost
11.	Depreciation on chairs and tables in the factory lunchroom.	Product cost
12.	The wages of the receptionist in the administrative offices	Period cost
13.	Cost of leasing the corporate jet used by the company\'s executives.	Period cost
14.	The cost of renting rooms at a Florida resort for the annual sales conference.	Period cost
15.	The cost of packaging the company\'s product	Product cost