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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

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

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

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