Question

Classifying period costs and product costs

Langley, Inc. is the manufacturer of lawn care equipment. The company incurs the following costs while manufacturing edgers:

• Handle and shaft of edger

• Motor of edger

• Factory labor for workers assembling edgers

• Lubricant used on bearings in the edger (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 edgers to customers

Requirements

1. Describe the difference between period costs and product costs.

2. Classify Langley’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

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

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).

Classification of the costs

Costs	Classification
Handle and shaft of edger	Product cost, Direct material
Motor of edger	Product cost, Direct material
Factory labor for workers assembling edgers	Product cost, Direct labor
Lubricant used on bearings in the edger (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 edgers to customers	Period Costs