Question

Question 1

10 MARKS

Ashland Company, a maker of kitchen cabinets, incurred the following costs during the current year:

Required: Classify each cost as either a product or period cost.

Product Period

1. Depreciation on automobiles used sales staff.
2.Salary of Ashland's chief executive officer
3.Glue used in the production process
4.Supplies for factory washroom
5.Research and development costs
6.Property taxes on factory building
7.Salary of company controller
8.Depreciation on furniture in factory lunchroom
9.Cost of lubricating machinery
10.Wood used in production process

Answer 1

	Period or Product	Reason
1. Depreciation on automobiles used sales staff.	period	its calculated assetwise that too month wise not related to product
2.Salary of Ashland's chief executive officer	Period	salary is always monthwise that is period wise its not related to product
3.Glue used in the production process	Product	Amount of glue used is directly proportional to production of goods
4.Supplies for factory washroom	Product	As its in factory all factory variable overheads are apportioned to product cost
5.Research and development costs	Period cost	since its not related to product they written of a period cost they are generallly considered sunk cost
6.Property taxes on factory building	Product cost	Since these are incurred in factory they apportioned to product cost
7.Salary of company controller	Period cost	controllers are not at the factory there work isnt related to product
8.Depreciation on furniture in factory lunchroom	Product cost	A they are related to factory whwre production is carried out hence they are product cost
9.Cost of lubricating machinery	Product cost	Its related to machinery used in factory premises hence product cost
10.Wood used in production process	Product	its mentioned used in production hence product cost