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.

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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 its finance its growth. The bank requires financial statements before approving such a loan. You have been asked to help prepare the financial statements and were given the following list of costs:

1. Depreciation on salespersons cars.

2.Rent on equipment used in the factory  

3.Lubricants used for machine maintenance  

4. Salaries of personnel who work in the finished goods warehouse  

5.Soap and paper towels used by factory workers at the end of a shift.  

6.Factory supervisors salaries  

7.Heat, water, and power consumed in the factory

8.Materials used for boxing products for shipment overseas. (Unites are not normally boxed)

9.Workers compensation insurance for factory employees  

sales conference  

10 depreciation on chairs and tables in the factory lunchroom  

11.The wages of the receptionist in the administrative offices

12.Cost of leasing the corporate jet used by the company’s executives  

13.The cost of renting rooms at a Florida resort for the annual 1. Depreciation on salespersons cars.  

14.The cost of packaging the company’s product.  

15. Advertising cost

Required: Classify the above cost as either product cost or period costs for the purpose of preparing the financial statements for the bank.

Here is the

Transaction                                                                         Cost

1. Depreciation on salespersons cars.                              Period

2.Rent on equipment used in the factory                         Product

3.Lubricants used for machine maintenance                   Product

4. Salaries of personnel who work in the                         Period

finished goods warehouse  

5.Soap and paper towels used by factory workers        Product

at the end of a shift.  

6.Factory supervisors salaries                                         Product

7.Heat, water, and power consumed in the factory       Product

8.Materials used for boxing products for                         Period

shipment overseas. (Unites are not normally boxed)  

9.Workers compensation insurance                                Product

for factory employees    

10 depreciation on chairs and tables                               Product

in the factory lunch room

11.The wages of the receptionist in the                            Period

administrative offices

12.Cost of leasing the corporate jet used                       Period

by the company’s executives  

13.The cost of renting rooms at a Florida resort for       Period

the annual sales conference  

14.The cost of packaging the company’s product.        Product

15. Advertising cost                                                          Period

Explanation:

Those costs that are incurred in the process of producing goods are called period cost. These costs include direct wages cost, direct material cost and factory overheard. This factory overheard consist of indirect expenses incurred in  production of goods.

On the other hand, period cost are incurred not directly for production of goods but mostly for the general administration, distribution and marketing of good. Period costs include sales and distribution expenses, finance cost, etc.

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