Final answer:
According to GAAP, product costs are classified as part of the cost of goods sold and included in the inventory value until the products are sold. Product costs include direct materials, direct labor, and factory overhead costs.
Step-by-step explanation:
According to GAAP (Generally Accepted Accounting Principles), product costs are classified as part of the cost of goods sold and included in the inventory value until the products are sold. Product costs include all costs directly involved in the production process, such as direct materials, direct labor, and factory overhead costs. These costs are incurred to create a product and cannot be easily traced back to a specific period of time or product unit.
For example, if a company manufactures bicycles, the product costs would include the cost of the bicycle frame, wheels, gears, and the labor required to assemble the bicycles in the factory.