EXERCISE 2–2 Classification of Costs as Period or Product Costs [LO2]

Suppose that you have been given a summer job at Fairwings Avionics, a company that manufac- tures sophisticated radar sets for commercial aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its tremendous growth. The bank requires financial statements before approving such a loan.

Required:

Classify each cost listed below as either a product cost or a period cost for purposes of preparing the financial statements for the bank.

1.        The cost of the memory chips used in a radar set.

2.        Factory heating costs.

3.        Factory equipment maintenance costs.

4.        Training costs for new administrative employees.

5.        The cost of the solder that is used in assembling the radar sets.

6.        The travel costs of the company’s salespersons.

7.        Wages and salaries of factory security personnel.

8.        The cost of air-conditioning executive offices.

9.        Wages and salaries in the department that handles billing customers.

10.       Depreciation on the equipment in the fitness room used by factory workers.

11.       Telephone expenses incurred by factory management.

12.       The costs of shipping completed radar sets to customers.

13.       The wages of the workers who assemble the radar sets.

14.       The president’s salary.

15.       Health insurance premiums for factory personnel.