Question

What are the consequences from a company who incorrectly classify product cost as a period cost? Explain.

Answer 1

Solution:

consequences from a company who incorrectly classify product cost as a period cost includes unit product cost is understated that may result in fixing of sales price at a lower level. Classifying product cost in period cost result in understatement of cost of goods sold and overstatement of gross profit, further operating expenses will overstated and net income will be understated, further ending inventory will be understated due to lower unit product cost.