Question

Which of the following is a product cost for a manufacturing company?

1) Salary of administrative staff
2) Rent for office space
3) Advertising expenses
4) Depreciation of machinery

Answer 1

For a manufacturing company, depreciation of machinery is a product cost, as it is directly associated with the production of goods, whereas other expenses listed such as administrative salaries, office rent, and advertising are period costs.

Step-by-step explanation:

In cost accounting, the determination of whether an expense is a product cost or a period cost is crucial. Product costs are associated with the production process and include direct materials, direct labor, and manufacturing overhead. Among the options provided, depreciation of machinery used in the production process is a product cost. This is because the cost is directly tied to the manufacturing equipment, an asset that is part of creating the product. In contrast, the salary of administrative staff, rent for office space, and advertising expenses are considered period costs because they are not directly tied to the production of goods and are expensed as incurred.