Multiple Choice
Which of the following statements best describes the rules concerning reporting periods for tax purposes?
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1. Introduction to Accounting
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Which of the following is considered a period cost in financial accounting?
A
Direct materials used in production
B
Factory utilities expense
C
Depreciation on manufacturing equipment
D
Sales salaries expense
Verified step by step guidance1
Understand the concept of period costs: Period costs are expenses that are not directly tied to the production process. These costs are incurred over a specific period and are typically associated with selling, administrative, or general business operations.
Differentiate between product costs and period costs: Product costs include direct materials, direct labor, and manufacturing overhead, which are directly related to the production of goods. Period costs, on the other hand, are not part of the manufacturing process and are expensed in the period they are incurred.
Analyze each option provided: Direct materials used in production, factory utilities expense, and depreciation on manufacturing equipment are all product costs because they are directly tied to the production process.
Identify the correct period cost: Sales salaries expense is considered a period cost because it is related to the selling function of the business and not the manufacturing process.
Conclude that period costs are expensed in the income statement during the period they are incurred, while product costs are included in inventory and expensed as cost of goods sold when the goods are sold.
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