Chapter 10, Problem 2E

Exercise 1-2A Identifying product versus selling, general, and administrative (SG&A) costs

Required

Indicate whether each of the following costs should be classified as a product cost or as an SG&A cost in accordance with GAAP:

a. Direct materials used in a manufacturing company.

b. Indirect materials used in a manufacturing company.

c. Salaries of employees working in the accounting department.

d. Commissions paid to sales staff.

e. Interest on the mortgage for the company’s corporate headquarters.

f. Indirect labor used to manufacture inventory.

g. Attorney’s fees paid to protect the company from frivolous lawsuits.

h. Research and development costs incurred to create new drugs for a pharmaceutical company.

i. The cost of secretarial supplies used in a doctor’s office.

j. Depreciation on the office furniture of the company president.