FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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a. Road Warrior Motor is a company that manufactures and sells cars. Indicate whether each of the following should be considered a product cost or a period cost for the company. If you identify the item as a product cost, also indicate whether it is a direct material cost, direct labor cost, or overhead cost. Write “1” under the correct answer. For example, the answer to item 0 is “product cost” and “overhead cost.”

0. Property taxes on factory building.

1. Cost of buying the metal needed to manufacture cars.

2. Depreciation on the furniture used in the sales showroom.

3. Cost of electricity used in the factories.

4. Salaries of factory workers who manufacture cars.

5. Salaries of factory security guards.

6. Salaries of office workers in the financial department.

7. Depreciation on the warehouse used to store raw materials.

8. Income taxes paid to the government.

 

b. The company manufactured 100 cars in January 2023 and has not sold any of them by the end of January. If the company uses a job costing system, which of the following statements is incorrect?

A. Raw materials become part of the inventory on the balance sheet.

B. Direct labor costs will become part of the cost of goods sold (COGS) on the income statement after the cars are sold.

C. Depreciation on the company’s headquarter office building reduces net income in January, but depreciation on the machines used to manufacture cars does not affect net income in January.

D. Selling and administrative costs will be capitalized in the inventory account on the balance sheet.

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