Question

Classifying Costs

The following is a list of costs that were incurred in the production and sale of large commercial airplanes:

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.

Costs	Classification
a. Cost of electronic guidance system installed in the airplane cockpit
b. Special advertising campaign in Aviation World magazine
c. Salary of chief compliance officer of company
d. Salary of chief financial officer
e. Decals for cockpit door, the cost of which is immaterial to the cost of the final product
f. Cost of electrical wiring throughout the airplane
g. Cost of normal scrap from production of airplane body
h. Instrument panel installed in the airplane cockpit
i. Depreciation on factory equipment
j. Masks for use by painters in painting the airplane body
k. Cost of paving the headquarters employee parking lot
l. Turbo-charged airplane engine
m. Prebuilt leather seats installed in the first-class cabin
n. Human Resources Department costs for the year
o. Hourly wages of employees that assemble the airplane
p. Salary of the Marketing Department personnel
q. Oil to lubricate factory equipment
r. Yearly cost of the maintenance contract for robotic equipment
s. Hydraulic pumps used in the airplane’s flight control system
t. Cost of miniature replicas of the airplane used to promote and market the airplane
u. Metal used for producing the airplane body
v. Power used by painting equipment
w. Annual bonus paid to the chief operating officer of the company
x. Interior trim material used throughout the airplane cabin
y. Salary of plant manager
z. Annual fee to a celebrity to promote the aircraft

Answer 1

Solution :

Product costs: Product costs are those costs which are incurred in the production of goods. This shall include direct materials, direct labor cost and factory overhead cost.

Period costs: These are the costs other than product costs. These are not incurred in manufacture of the goods. However the administrative and selling expense are period costs.

Cost	Product costs	Period costs
	Direct materials	Direct labor cost	Factory overhead costs	Selling expenses	Administrative expense
a. Cost of electronic guidance system installed in the airplane cockpit	Yes
b. Special advertising campaign in Aviation World magazine				Yes
c. Salary of chief compliance officer of company					Yes
d. Salary of chief financial officer					Yes
e. Decals for cockpit door, the cost of which is immaterial to the cost of the final product			Yes
f. Cost of electrical wiring throughout the airplane	Yes
g. Cost of normal scrap from production of airplane body			Yes
h. Instrument panel installed in the airplane cockpit	Yes
i. Depreciation on factory equipment			Yes
j. Masks for use by painters in painting the airplane body			Yes
k. Cost of paving the headquarters employee parking lot					Yes
l. Turbo-charged airplane engine	Yes
m. Prebuilt leather seats installed in the first-class cabin	Yes
n. Human Resources Department costs for the year					Yes
o. Hourly wages of employees that assemble the airplane		Yes
p. Salary of the Marketing Department personnel				Yes
q. Oil to lubricate factory equipment			Yes
r. Yearly cost of the maintenance contract for robotic equipment			Yes
s. Hydraulic pumps used in the airplane’s flight control system	Yes
t. Cost of miniature replicas of the airplane used to promote and market the airplane				Yes
u. Metal used for producing the airplane body	Yes
v. Power used by painting equipment			Yes
w. Annual bonus paid to the chief operating officer of the company					Yes
x. Interior trim material used throughout the airplane cabin	Yes
y. Salary of plant manager			Yes
z. Annual fee to a celebrity to promote the aircraft				Yes

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