EB1.

LO 4.1Abuah Goods manufactures clothing. For each item listed, identify whether it is a product cost, a period cost, or not an expense.

pins to keep materials together while garment is being manufactured

real estate taxes on store

advertising expense

product inspector wages

shirts for sale

Chief Financial Officer salary

cost of goods sold

Period cost includes advertising expense and CFO salary are period cost because they are not manufacturing related expenses. These expenses are associated to passage of time.

As Pins required to keep the material together while garment is being manufactured is manufacturing related hence it is Product cost. Likewise, Real estate taxes on store house, product inspector wages and cost of goods sold is product cost.

Explanation:

Remember the cost that include specifically fixed cost for manufacturing and direct costs are products cost because these are the cost required to manufacture the product. In the above case, cost of goods sold is variable cost whereas the wages of product inspector is specific fixed cost for the manufacturing of products.

The costs that does not relate to manufacturing and are associated with other than manufacturing operations of the organization are Period costs. In this case, advertising expense does not relate to manufacturing and is associated with other than manufacturing operations of the organization. NOTE: Shirts for sale are invitation to offer, these does not qualify for expense as their is no obligation arrived to pay to any body on the part of organization.