Final answer:
The annual picnic for plant employees is considered a period cost because it is an expense not directly related to the production of goods but related to general administrative functions.
Step-by-step explanation:
The annual picnic for plant employees is considered a period cost. This is because it is a cost that is not directly tied to the production process or the products being manufactured. Period costs are expenses that are incurred on a periodic basis and are not included as part of the cost of goods sold. In contrast, product costs are costs that are directly related to the creation of a product, such as raw materials, labor, and manufacturing overhead.
An example of a product cost would be the materials used to make a widget in a factory. On the other hand, a company's annual picnic is an expense related to general company functions and employee welfare that does not have a direct impact on the production process; it's treated as an administrative expense and recorded during the period it occurs.