The classification of each cost and its amount as either product or period costs is as follows:
Product Costs Period Costs
1. Plastic for the casing— $20,000
2. Wages of assembly workers— $88,000
3. Property taxes on factory— $7,000
4. Accounting staff salaries— $36,000
5. Drum stands (1,000 stands purchased)— $38,000
6. Rent cost of equipment for sales staff— $12,000
7. Upper management salaries— $175,000
8. Annual flat fee for factory
maintenance service— $13,000
9. Sales commissions— $24 per unit
10. Machinery depreciation, straight-line— $48,000
Product costs are directly related to production, including direct materials, direct labor, and allocated factory overhead.
Period costs are not directly related to production, for example, general and administrative expenses, such as rent, office depreciation, office supplies, and utilities.
Thus, we can determine product costs as those that involve production, while period costs are not involved in the production but marketing, selling, and administration.
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Listed here are the total costs associated with the 2017 production of 1,000 drum sets manufactured by TrueBeat. The drum sets sell for $493 each.
Costs
1. Plastic for the casing—$20,000
2. Wages of assembly workers—$88,000
3. Property taxes on factory—$7,000
4. Accounting staff salaries—$36,000
5. Drum stands (1,000 stands purchased)—$38,000
6. Rent cost of equipment for sales staff—$12,000
7. Upper management salaries—$175,000
8. Annual flat fee for factory maintenance service—$13,000
9. Sales commissions—$24 per unit
10. Machinery depreciation, straight-line—$48,000
