Company which manufactures custom made machinery routinely incurs sizable teleph

Question

Company which manufactures custom made machinery routinely incurs sizable telephone costs in the process of taking sales orders from customers. Which of the following is a proper classification of this cost?
A.prime cost B. Conversion cost C. Period cost D. Product cost Company which manufactures custom made machinery routinely incurs sizable telephone costs in the process of taking sales orders from customers. Which of the following is a proper classification of this cost?
A.prime cost B. Conversion cost C. Period cost D. Product cost A.prime cost B. Conversion cost C. Period cost D. Product cost

Explanation / Answer

Answer:- Company which manufactures custom made machinery routinely incurs sizable telephone costs in the process of taking sales orders from customers. The following is a proper classification of this cost:- Period cost (Option c).

Explanation:- Period costs are basically all costs other than product costs. These are not incurred on the manufacturing process and therefore these cannot be assigned to cost goods manufactured. Period costs are thus expensed in the period in which they are incurred.

Example of period costs are advertising, sales commissions, office supplies, office depreciation, legal and research and development costs.

Period costs may be further classified into selling costs and administrative costs.

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