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“Which of the following best describes a period cost?
A) A cost that relates to a time period which is deducted as expenses for the period and is not included in the inventory valuation.
B) A cost that can be easily allocated to a particular period, without the need for arbitrary apportionment between periods.
C) A cost that is identified with a unit produced during the period, and is included in the value of inventory. The cost is treated as an expense for the period when the inventory is actually sold.
D) A cost that is incurred regularly every period, eg every month or quarter.”Hello tutor,
for this question, I could choose the correct answer.
But for others, I am not sure if I classified them correctly.
B is non-overhead cost
C I am not sure if there is such a cost within MA curriculum or it is just a bait. But it sounds a bit confusing to me as e.g when we include such a cost in inventory, once it is sold, then finished good will be classified as COGS.
D I think there are some costs that happen in a regular basis but are still classified as product cost instead of period cost, such as rent and rate for production plant.Thank you tutor and I hope to receive your invaluable help 🙂
B is because it doesn’t matter whether or not it is easily allocated. A period cost is one that is charged in full in the period to which it relates.
C is what happens with absorption costing. Some of all costs (including fixed costs) is included in the valuation of inventory and this therefore charged when the goods are sold. With marginal costing, fixed costs are not included in the valuation of inventory and all of the fixed cost is charged in the period to which it relates.
D It is not a choice between product cost and period cost. Period costs are those that occur for a particular period regardless of how many units are produced. Rent etc are period costs, but to be a period cost they don’t have to occur regularly such as every month.
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