Question

1. Indicate whether each item below is a product cost (inventoriable cost) or a period cost. If it’s a product cost say whether it is DM (direct materials), DL (direct labor) or MO (manufacturing overhead, also called indirect manufacturing costs). If it is a period cost, indicate whether it is AE (administrative expense) or SE (selling expense). These costs are for a company that makes tires.

a. Cost of the rubber that goes into the tire

b. Depreciation cost of $10,000 per year for equipment used by the company’s top management

c. Depreciation cost of $15,000 per year for machines used in the factory where the tires are made

d. Depreciation cost of $12,000 per year for cars used by the company’s salespeople

e. Cost of paying $15 per hour to the workers who make the tires. The more tires that are made, the more hours the workers work.

f. Commissions paid to the salespeople that equal $10 for each tire the salesperson sells.

g. The cost of oil to lubricate the machines in the factory.

h. Salary of the factory supervisor which is $9,000 per month.

i. Salary of the president of the company which is $20,000 per month.

j. Money earned by the sales manager that equals $5 for each tire sold.

Answer 1

						Product cost			Period cost
						DM	DL	MO	AE	SE
a	Cost of the rubber that goes into tire					XX
b	Depreciation cost of $10,000 equiment used by top manage								XX
c	depreciation of machines used in factory							XX
d	depreciation of cars used by sales people									XX
e	cost of paying $15 per hour to workeers						XX
f	commissions paid to salespeople									XX
g	cost of oil to lubricate							XX
h	Salary of factory supervisor							XX
i	salary of president of the company								XX
j	money earned by sales manager									XX