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The following costs items relate to the operations of Canoe Company. Classify each as a produce...

Question:

The following costs items relate to the operations of Canoe Company. Classify each as a produce cost or a period cost. Also, for those costs that are classified as product costs, indicate whether they should be classified as direct or indirect costs.

(i) Sales commissions

(ii) Expired insurance-factory

(iii) Sales salaries

(iv) Office supplies-sales

(v) Supervisory salaries-factory

(vi) Factory utilities

(vii) Shipping to customers

(viii) Office Salaries

(ix) Small tools-written off

Product vs Period Costs and Direct vs Indirect Costs

One of the major roles of the cost accountant is to help to classify costs as period costs (which means they are expensed immediately in the period they are incurred) or product costs (which means they are included as part of inventory costs). Another role which the cost accountant plays is to help classify costs as direct (directly traceable to a product or to a job, like direct materials and direct labor, for example) or indirect (like manufacturing overheads costs not direct traceable to a product or to a job).

Answer and Explanation:

(i) Sales commissions

Period costs (expensed immediately, as they are part of selling, general, and administrative costs under operating expenses on...

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Product Costs in Accounting: Definition & Examples

from Financial Accounting: Tutoring Solution

Chapter 2 / Lesson 13
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