Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883



Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Classifying costs
The following is a list of costs that were incurred in the production and sale of all-terrain vehicles (ATVs).

a.Attorney fees for drafting a new lease for headquarters offices.
b.Cash paid to outside firm for janitorial services for factory.
c. Commissions paid to sales representatives, based on the number of ATVs sold.
d.Cost of advertising in a national magazine.
e.Cost of boxes used in packaging ATVs.
f. Electricity used to run the robotic machinery.
g.Engine oil used in engines prior to shipment. h. Factory cafeteria cashier's wages.
i. Filler for spray gun used to paint the ATVs.
j. Gasoline engines used for ATVs.
k.Hourly wages of operators of robotic machinery used in production.
I. License fees for use of patent for transmission assembly, based on the number of ATVs produced.
m. Maintenance costs for new robotic factory equipment, based on hours of usage.
n. Paint used to coat the ATVs.
o.Payroll taxes on hourly assembly line employees.
p.Plastic for outside housing of ATVs.
q.Premiums on insurance policy for factory buildings.
r. Properly taxes on the factory building and equipment.
s.Salary of factory supervisor.
t. Salary of quality control supervisor who inspects each ATV before it is shipped.
u.Salary of vice president of marketing.
v. Steering wheels for ATVs.
w. Straight-line depreciation on the robotic machinery used to manufacture the ATVs.
x.Steel used in producing the ATVs.
y.Telephone charges for company controller's office.
z.Tires for ATVs.

Classify each cost as either a product cost or a period cost. Indicate whether each product cost is a direct materials cost, a direct labor cost, or a factory overhead cost. Indicate whether each period cost is a selling expense or an administrative expense. Use the following tabular headings for your answer, placing an "X" in the appropriate column.

To determine

Concept introduction:

Product cost:

The cost which is incurred on manufacturing or production of product is referred as product cost. This cost is also known as cost of goods sold. It includes manufacturing expenses such as direct material, direct labor and overheads.

Period Cost:

Period cost is the one which are incurred in regard to sales as it includes selling expenses, administration expenses, office expenses, etc. These are not involved in manufacturing of product.

The cost classification for the ATVs.


The table showing the cost classification is as follows:

    Product CostsPeriod Costs
    CostDirect MaterialDirect LaborFactory OverheadSelling ExpensesAdministration Expenses
    Attorney feesYes
    Paid for janitorial servicesYes
    Commission to sales representativeYes
    Advertising costYes
    Boxes cost expenseYes
    Electricity used to run machineryYes
    Engine oil prior to shipmentYes
    Wages to cashier of factory cafeteriaYes
    Filter for spray gun to paintYes
    Gasoline enginesYes
    Hourly wages of operations of robotic machineryYes

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