Question

Each of the following costs pertains to Bailey Dairy Products​ Company, a dairy processing company. Classify each of the​ company's costs as a period cost or a product cost. Further classify product costs as either direct material​ (DM), direct labor​ (DL), or manufacturing overhead​ (MOH). ​(If the cost is a period​ cost, leave the classification input field​ empty; do not select a​ label.) LOADING...​(Click the icon to view the​ costs.) Cost Period Cost or Product Cost DM, DL or MOH
1. Television advertisements for Bailey’s products Period cost MOH
2. Lubricants used in running bottling machines Product cost MOH
3. Research and development related to elimination of antibiotic residues in milk Period cost MOH
4. Gasoline used to operate refrigerated trucks delivering finished dairy products to grocery stores Period cost MOH
5. Company president’s annual bonus Period cost MOH

Answer 1

Answer:

1. Television advertisements for Bailey’s products

• PERIOD COST

2. Lubricants used in running bottling machines

• PRODUCT COST: manufacturing overhead

3. Research and development related to elimination of antibiotic residues in milk

• PERIOD COST

4. Gasoline used to operate refrigerated trucks delivering finished dairy products to grocery stores

• PERIOD COST

5. Company president’s annual bonus

• PERIOD COST

Explanation:

Product costs are all costs that are directly related to the manufacturing process of milk or other dairy products, e.g. workers wages, milk (raw materials).

Period costs are not directly related to the company's manufacturing process and they include sales and administrative costs (S&A), research and development (R&D), delivery costs.

The freight costs incurred for purchasing materials are part of product costs, but the delivery costs are sales expenses (period costs).