Advertising expense . . .. 20,250 Depreciation expense-Office equipment..8 Depre

Question

Advertising expense . . .. 20,250 Depreciation expense-Office equipment..8 Depreciation expense-Selling equipment. 10,125 Depreciation expense-Factory equipment Factory supervision. Factory supplies used.... 8,440 Office salaries expense 70,875 35,400 Rent expense-Office space 21,500 Rent expense-Selling space 6,060 Rent expense-Factory building.93,500 37,500 Maintenance expense-Factory equipment 23,625 30,375 ....562,500 Sales 4,942,625 295,300 Sales salaries expense... Required 1. Classify each cost as either a product or period cost. 2. Classify each product cost as either direct materials, direct labor, or factory overhead. 3. Classify each period cost as either selling expenses or general and administrative expenses.

Explanation / Answer

Product cost refers to manufacturing cost including factory overhead (direct and indirect). All the cost which can capitalised or loaded on product can be considered at Product cost

Period Cost refers to general administation and selling expenses of the company, which can not be loaded on inventory for product costing purpose

1. Classification as Product Cost or period Cost

Advertising Expenses - Period Cost as part of selling & distrubution cost

Depreciation - Office equipment - Period Cost

Depreciation - Selling equipment - Period Cost

Depreciation - Factory equipment - Product cost (even thought depreciation is normally part of period cost, here since it is for facotry equipment which is used for manufacuring the product, hence it will form part of product cost)

Factory Supervision - Product Cost

Factory Supplies used - Product Cost

Factory Utilities - Product Cost

Direct Labour - Product Cost

Indirect Labout - Product Cost

Misc. Production Cost - Product Cost

Office salaries - Period Cost, since it is a part of general administration expenses

Raw Material Purchases - Product Cost

Rent Expenses - Office Space - Period Cost

Rent Expenses - Selling Space - Period Cost

Rent expenses - Factory building - Product Cost

Maintenance expenses - Factory equipment - Product Cost

sales salaries expenses - Period Cost

2. Product Cost as either Direct material, Direct Labour and Factory Overheads

3. Period Cost as either Selling Expenses and General & Administration Expenses

Nature of expenses/Cost Amount In $ Direct Material - Raw Material Purchases 894,375 Direct Labour - Direct labor 562,500 Factory Overheads - Depreciation expenses - Factory equipment 35,400 - Factory supervision 121,500 - Factory supplies used 6,060 - Factory Utilities 37,500 - Indirect Labour 59,000 - Misc. Production Cost 8,440 - Rent expenses - Factory Building 93,500 - Maintenance expenses - Factory equipment 30,375

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