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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.

Short Answer

Expert verified

Period costs are operating costs and products costs are associated with products and classification into period costs and product costs is done as required.

Step by step solution

01

Step-by-Step SolutionStep 1: Difference between period costs and product costs

Period costs are defined as the operating costs that are expensed in the accounting period in which they are incurred. On the other hand, product cost includes all the costs of the product as required by the GAAP. These costs are recorded as the asset until the goods are sold. If the goods are sold then they are recorded as the cost of goods sold (expense).

02

Classification of the costs

Costs

Classification

Shaft and handle of weed trimmer

Product cost, Direct material

The motor of weed trimmer

Product cost, Direct material

Factory labor for workers assembling weed trimmers

Product cost, Direct labor

Nylon thread used by the weed trimmer (not traced to the product)

Product cost, Manufacturing Overhead

Glue to hold the housing together

Product cost, Manufacturing Overhead

Plant janitorial wages

Product cost, Manufacturing Overhead

Depreciation on factory equipment

Product cost, Manufacturing Overhead

Rent on plant

Product cost, Manufacturing Overhead

Sales commissions

Period Costs

Administrative salaries

Period Costs

Plant utilities

Product cost, Manufacturing Overhead

Shipping costs to deliver finished weed trimmers to customers

Period Costs

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Most popular questions from this chapter

This is the first problem in a sequence of problems for Piedmont Computer Company, a manufacturer of personal computers and tablets. During its first month of manufacturing, Piedmont Computer Company incurred the following manufacturing costs:

Balances: Beginning Ending

Direct Materials \( 10,500 \) 9,700

Work-in-Process Inventory 0 17,000

Finished Goods Inventory 0 31,000

Other information:

Direct materials purchases $ 16,000

Plant janitorial services 500

Sales salaries expense 10,000

Delivery expense 1,600

Sales revenue 1,100,000

Utilities for plant 16,000

Rent on plant 9,000

Customer service hotline costs 19,000

Direct labor 210,000

Prepare a schedule of cost of goods manufactured for Piedmont Computer Company for the month ended January 31, 2020.

Match the definition to the key term.

13. Triple bottom line

14. Value chain

15. Just-in-time management

16. Enterprise resource planning

17. Total quality management

a. A cost management system in which a company produces products just in time to satisfy needs.

b. A philosophy designed to integrate all organizational areas in order to provide customers with superior products and services, while meeting organizational goals throughout the value chain.

c. Software system that can integrate all of a company’s functions, departments, and data into a single system.

d. Evaluating a company’s performance by its economic (profits), social (people), and environmental (planet) impact.

e. Includes all activities that add value to a company’s products and services

Computing direct materials used

Tuscany, Inc. has compiled the following data:

Purchases of Direct Materials $ 6,300

Freight In 400

Property Taxes 800

Ending Direct Materials 1,300

Beginning Direct Materials 4,100

Compute the amount of direct materials used.

What are prime costs? Conversion costs?

Determining the flow of costs through a manufacturer’s inventory accounts

True Fit Shoe Company makes loafers. During the most recent year, True Fit incurred total manufacturing costs of \(21,900,000. Of this amount, \)2,600,000 was direct materials used and \(14,800,000 was direct labor. Beginning balances for the year were Direct Materials, \)700,000; Work-in-Process Inventory, \(1,500,000; and Finished Goods Inventory, \)1,100,000. At the end of the year, balances were Direct Materials, \(800,000; Work-in-Process Inventory, \)2,000,000; and Finished Goods Inventory, $1,080,000.

Requirements Analyze the inventory accounts to determine:

1. Cost of direct materials purchased during the year.

2. Cost of goods manufactured for the year.

3. Cost of goods sold for the year.

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