For apparel manufacturer Abercrobmie & Fitch, Inc., classify each of the following costs as either a product cost or a period cost: Research and development costs Depreciation on sewing machines Fabric used during production Depreciation on office equipment Advertising expenses Repairs and maintenance costs for sewing machines Salary of production quality control supervisor Utility costs for office building Sales commissions Salaries of distribution center personnel Wages of sewing machine operators Factory janitorial supplies Chief financial officer’s salary Travel costs of media relations employees Factory supervisors’ salaries Oil used to lubricate sewing machines Property taxes on factory building and equipment
For apparel manufacturer Abercrobmie & Fitch, Inc., classify each of the following costs as either a product cost or a period cost:
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Research and development costs
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Depreciation on sewing machines -
Fabric used during production
-
Depreciation on office equipment
-
Advertising expenses
-
Repairs and maintenance costs for sewing machines
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Salary of production quality control supervisor
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Utility costs for office building
-
Sales commissions
-
Salaries of distribution center personnel
-
Wages of sewing machine operators
-
Factory janitorial supplies
-
Chief financial officer’s salary
-
Travel costs of media relations employees
-
Factory supervisors’ salaries
-
Oil used to lubricate sewing machines
-
Property taxes on factory building and equipment
Period costs and product costs are two categories of costs for a company that are incurred in producing and selling their product or service.
Product costs are those directly related to the production of a product or service intended for sale. When products are sold, the product costs become part of costs of goods sold as shown in the income statement.
A manufacturer, for example, would have product costs that include:
- Direct labor
- Raw materials
- Manufacturing supplies
- Overhead that is directly tied to the production facility such as electricity
For a retailer, the product costs would include the supplies purchased from a supplier and any other costs involved in bringing their goods to market. In short, any costs incurred in the process of acquiring or manufacturing a product are considered product costs.
Period costs are all other indirect costs that are incurred in production. Period costs are all costs not included in product costs. Period costs are not directly tied to the production process. Overhead or sales, general, and administrative costs are considered period costs. SG&A includes costs of the corporate office, selling, marketing, and the overall administration of company business.
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