Depreciation on salespersons' cars. The treatment of depreciation as an indirect cost is the most common treatment within a business. Depreciation of administrative equipment is period cost because if production is done or not those assets will be depreciated hence cost will be charged as period cost. Manufacturing overhead is all indirect costs incurred during the production process. Determine the total amount of product costs. See Uniform Capitalization Rules in Pub. All costs can be classified as product or period costs. (Product cost) 4. This is because of the convention rules. You must amortize these costs. As we classify costs, one of the most useful classifications is product and period costs. Property taxes on the factory: $45,000. 1. (Product cost) 3. (Period cost) 2. Rent on equipment used in the factory. In the production department of a manufacturing company, depreciation expense is considered an indirect cost, since it is included in factory overhead and then allocated to the units manufactured during a reporting period. Lubricants used for machine maintenance. This overhead is applied to the units produced within a reporting period . 11. Soap and paper towels used by factory workers at the end of a shift. Depreciation on delivery trucks and sales commissions. Equipment used to build capital improvements. Answers and explanations. Factory utilities: $39,000. In each accounting period, a predetermined portion of the capitalized cost of existing fixed assets, such as equipment, building, vehicle, etc., is transferred from the fixed assets in the balance sheet to depreciation expense in the income statement so that the cost can be matched with the corresponding revenue generated by utilizing these assets. The formula for computing the predetermined manufacturing overhead rate is estimated annual overhead costs divided by an expected annual operating activity CTRUE / FALSE) 10. Examples of costs that are included in the manufacturing overhead category are: Depreciation on equipment used in the production pro Depreciable assets, except for buildings, fall within a three-year, five-year, seven-year, 10-year, 15-year, or 20-year recovery period under the general depreciation system (GDS). Repairs to factory equipment are not period costs. These costs can also […] Depreciation of administrative equipment is period cost because if production is done or not those assets will be depreciated hence cost will be charged as period cost. (Product cost) 5. A Monthly depreciation of the equipment in a fitness room used by factory workers. However, the actual recovery period shown in the MACRS depreciation tables show a recovery period of one additional year. Repairs to office equipment are period costs. B. 551. You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Section 197 intangibles. Repairs on office equipment: $1,800. Looking at the cost of products is extremely important to pricing of those products. Most companies use products as the main basis for their cost objects. Period costs are expensed in the period … Salary of a billing clerk. Utilities for manufacturing equipment is a part of factory overhead (TRUE / FALSE) 9. Depreciation of Factory Machinery is classified as a period cost (TRUE FALSE) 8. That is, the cost of the repairs to office equipment will be reported as a selling, general and administrative (SG&A) expense in the period in which the repairs take place. Salaries of personnel who work in the finished goods warehouse. 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