“Suppose that you have been given a summer job at J limited, a company that manufactures sophisticated radar sets for commercial aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its tremendous 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: The cost of the memory chips used in a radar set. Factory heating costs. Factory equipment maintenance costs. Training costs for new administrative employees. The cost of the solder that is used in assembling the radar sets. The travel costs of the company’s salespersons. Wages and salaries of factory security personnel. The cost of air-conditioning executive offices. Wages and salaries in the department that handles billing customers. Depreciation on the equipment in the fitness room used by factory workers. Telephone expenses incurred by factory management. The costs of shipping completed radar sets to customers. The wages of the workers who assemble the radar sets. The president’s salary. Health insurance premiums for factory personnel. Required: Classify each of the cost items as a product cost or a period cost.”

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter11: Simulation Models

Section11.3: Financial Models

Problem 28P

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“Suppose that you have been given a summer job at J limited, a company that manufactures sophisticated radar sets for commercial aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its tremendous 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:
The cost of the memory chips used in a radar set.
Factory heating costs.

Factory equipment maintenance costs.

Training costs for new administrative employees.
The cost of the solder that is used in assembling the radar sets.
The travel costs of the company’s salespersons.

Wages and salaries of factory security personnel.
The cost of air-conditioning executive offices.

Wages and salaries in the department that handles billing customers.
Depreciation on the equipment in the fitness room used by factory workers.
Telephone expenses incurred by factory management.

The costs of shipping completed radar sets to customers.
The wages of the workers who assemble the radar sets.
The president’s salary.

Health insurance premiums for factory personnel.

Required:

Classify each of the cost items as a product cost or a period cost.”

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