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Cost Accounting: Cost concepts and classifications · Product and Period Costs

Learn which costs a manufacturer holds in inventory, which it expenses right away, and how that choice moves reported profit.

Cost Accounting · 24 questions

Try 3 questions

1. In a manufacturing company, which costs are product costs (also called inventoriable costs)?

  1. Every cost the company incurs in the period
  2. Only the raw materials inside the product
  3. Direct materials, direct labor and factory overhead
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Answer: Direct materials, direct labor and factory overhead

Product costs are all the costs of making the product. They attach to the units and sit in inventory until those units are sold.

2. How is the salary of a manufacturer's sales manager classified?

  1. Factory overhead assigned to each unit
  2. A product cost included in inventory
  3. A period cost, expensed when incurred
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Answer: A period cost, expensed when incurred

Selling costs are not part of making the product, so they never enter inventory; they are expensed in the period they occur.

3. When does a product cost show up as an expense on the income statement?

  1. When the goods are finished in the factory
  2. When the cost is paid in cash
  3. When the goods it is attached to are sold
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Answer: When the goods it is attached to are sold

Product costs wait in inventory and become cost of goods sold only when the units are sold, matching the cost with the revenue it helped earn.

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