Question

The following calendar year-end information is taken from the December 31, 2017, adjusted trial balance and other records of Leone Company.

Advertising expense 30,250
Depreciation expense—Office equipment 8,250
Depreciation expense—selling equipment 8,800
Depreciation expense—Factory equipment 34,150
Factory supervision 108,060
Factory supplies used 10,600
Factory utilities 35,400
Direct labor 744,000
Indirect labor 63,400
Miscellaneous production costs 9,100
Off ice salaries expense 65,750
Raw materials purchases* 947,500
Rent expense—Office space 28,200
Rent expense—selling space 30,000
Rent expense—Factory building 84,800
Maintenance expense—Factory equipment 40,200
Sales 4,862,500
Sales salaries expense 400,560

*Assume that the raw materials inventory account is used only for direct materials. Indirect materials are recorded in a factory supplies account.

Required:
Classify each of the costs as either a product or period cost. Then, classify each of the product costs as either direct materials, direct labor, or factory overhead and each of the period costs as either selling or general and administrative expenses.

Answer 1

Advertising expense = Period Cost : selling expense

Depreciation expense—Office equipment = Period Cost : general and administrative expenses

Depreciation expense—selling equipment = Period Cost : selling expenses

Depreciation expense—Factory equipment = Product Cost : factory overhead

Factory supervision = Product Cost : factory overhead

Factory supplies used = Product Cost : factory overhead

Factory utilities = Product Cost : factory overhead

Direct labor = Product Cost : direct labor

Indirect labor = Product Cost : factory overhead

Miscellaneous production costs = Product Cost : factory overhead

Office salaries expense = Period Cost : general and administrative expenses

Raw materials purchases = Product Cost : direct materials

Rent expense—Office space = Period Cost : general and administrative expenses

Rent expense—selling space = Period Cost : selling expenses

Rent expense—Factory building = Product Cost : factory overhead

Maintenance expense—Factory equipment = Product Cost : factory overhead

Step-by-step explanation:

A product cost is either direct material, direct labor or factory overhead and is included in Inventory valuation.

A period cost is either a selling or general and administrative expenses and is expensed in the income statement during the period of reporting.