Chapter 16: Q1CA (page 906)
In 100 words or fewer, explain the difference between product costs and period costs. In your explanation, explain the inventory accounts of a manufacturer.
Period cost are the operating expenses and the products costs are which incurred for manufacturing the product.
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Computing cost of goods sold and operating income, merchandising company
Consider the following partially completed income statements for merchandising companies and compute the missing amounts:
Smith, Inc. Allen, Inc.
Net Sales Revenue \( 101,000 \) (d )
Cost of Goods Sold:
Beginning Merchandise Inventory (a) 29,000
Purchases and Freight In 50,000 (e)
Cost of Goods Available for Sale (b) 89,000
Ending Merchandise Inventory (2,200) (2,200)
Cost of Goods Sold 61,000 (f)
Gross Profit 40,000 114,000
Selling and Administrative Expenses (c ) 84,000
Operating Income \( 12,000 \) (g)
Explain the differences between planning, directing, and controlling.
Question:Classifying period costs and product costs
Lawlor, Inc. is the manufacturer of lawn care equipment. The company incurs the following costs while manufacturing weed trimmers:
• 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 the 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
Requirements
1. Describe the difference between period costs and product costs.
2. Classify Lawlor’s costs as period costs or product costs. If the costs are product costs, further classify them as direct materials, direct labor, or manufacturing overhead.
Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost:
d. Salaries of the company’s top executives.
How does a service company calculate unit cost per service?
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