U2, AOS 1 - Lesson 9 - Product and Period Costs (Pt.2)

Question 1

A product cost is a…

Answer 1

Cost incurred in getting a product into a condition and location ready for sale which can be allocated to the Unit Cost of an individual product on a logical basis.

Question 2

A period cost is a…

Answer 2

Cost incurred in getting a product into a condition and location ready for sale which can not be allocated to the Unit Cost of an individual product on a logical basis.

Question 3

T/f - An example of a period cost is the salary of a company’s marketing manager.

Answer 3

True

Question 4

T/f - Cost of sales is an example of a Cost of Goods Sold.

Answer 4

True

Question 5

How are product costs treated on the financial statements?

Answer 5

Product costs are factored into the cost of inventory on the balance sheet until the product is sold. When sold, these costs are expensed as cost of goods sold on the income statement.

Question 6

How are period costs treated on the financial statements?

Answer 6

Period costs are expensed in the income statement in the period in which they are incurred - normally when the inventory is acquired.

Question 7

Examples of items treated as product costs would be…

Answer 7

Freight in
Delivery in
Packaging
Stickering
Customs Duties
Buying fees

Question 8

Until all of the inventory is sold, what is the impact on Net Profit if a cost is treated as a Product Cost?

Answer 8

Net Profit = higher

Question 9

Until all of the inventory is sold, what is the impact on Net Profit if a cost is treated as a Period Cost?

Answer 9

Net profit = lower

Question 10

T/f - Regardless of whether something is treated as a product or a period cost, the Net Profit will be the same once all of the specific pieces of inventory have been sold.

Answer 10

True - the difference would occur during the process of selling the inventory.