Question

The costs were taken from the accounting records of the Barnwell Manufacturing Company. Classify each item as either a product cost or a period cost. Also, classify all product costs as direct or indirect, assuming that the cost object is each unit of product manufactured.

a. State income taxes
b. Insurance on the manufacturing facilities
c. Supplies used in manufacturing
d. Wages for employees in the assembly department
e. Wages for employees who deliver the product
f. Interest on notes payable
g. Materials used in the production process
h. Rent for the sales outlet in Sacramento
i. Electricity for manufacturing equipment
j. Depreciation expense on delivery trucks
k. Wages for the sales staff
l. Factory supervisors' salaries
m. Company president's salary
n. Advertising expense

Answer 1

Part 1

Product Cost

Insurance on the manufacturing facilities

Supplies used in manufacturing

Wages for employees in the assembly department

Materials used in the production process

Electricity for manufacturing equipment

Factory supervisors' salaries

Period Cost

State income taxes

Wages for employees who deliver the product

Interest on notes payable

Rent for the sales outlet in Sacramento

Depreciation expense on delivery trucks

Advertising expense

Company president's salary

Wages for the sales staff

Part 2

Direct Cost

Supplies used in manufacturing

Wages for employees in the assembly department

Materials used in the production process

Indirect Cost

Insurance on the manufacturing facilities

Electricity for manufacturing equipment

Factory supervisors' salaries

Step-by-step explanation:

All manufacturing costs are product costs whilst non-manufacturing costs are period costs.

Direct costs can be traced directly to the product being manufactured whist indirect costs are difficult to trace directly to the product being manufactured.