Question

Micro Computer Company has set up a toll-free telephone line for customer inquiries regarding computer hardware produced by the company. The cost of this toll-free line would be classified as which of the following?

a. Product cost
b. Manufacturing overhead
c. Direct labor
d. Period cost

Answer 1

The cost of the toll-free telephone line would be classified as period cost.

Step-by-step explanation:

The cost of setting up a toll-free telephone line for customer inquiries regarding computer hardware would be classified as period cost.

Period costs are expenses that are not directly related to the production of goods or services, but rather incurred over a specific period of time. They are not included in the cost of goods sold and are expensed on the income statement in the period in which they are incurred.

In this case, the cost of the toll-free telephone line is not directly related to the production of computer hardware and is not considered a product cost, manufacturing overhead, or direct labor. Instead, it is a period cost as it is incurred over a specific period of time to support the company's customer service operations.

Answer 2

Answer: The cost of this toll-free line would be classified as d. Period cost.

Explanation: The cost of a free telephone line for customer inquiries regarding the computer hardware produced by the company would consist of a cost of customer service or follow-up after having made a sale that would be useful to retain customers but is a cost that could be classified as "marketing" cost.