Easy Practice Test
Product vs Period Costs

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1. The cost to ship the product to the customer is a
     a. manufacturing overhead costIncorrect
     b. period costs, sellingShipping is a period cost and (a. and d.) are product costs so they can not be correct. Shipping is a selling cost and not an administrative cost. (c.) Selling costs are costs incurred to make the sale and get the product to the customer. Selling costs are always period costs and are expensed on the income statement in the period they are incurred.
     c. period costs, administrativeIncorrect
     d. product cost, selling Incorrect

2. Which of the following is an example of a direct material cost?
     a. glue and tape, not traceableIncorrect
     b. plastic part in the product, easy to trackDirect materials become part of the product. The plastic is part of the finished product. (a. and c.) are manufacturing overhead costs. (d.) is normally a selling cost.
     c. supervisors on the production line Incorrect
     d. boxes used to ship the product that are not trackedIncorrect

3. Which of the following is an example of direct labor cost?
     a. the worker in the warehouseIncorrect
     b. the worker on the production lineDirect labor physically touches the product to make it and a worker on the production line does this. A warehouse worker is a period cost (a.). Both c. and d. are manufacturing overhead costs.
     c. the worker who inspects the productIncorrect
     d. the worker who cleans the manufacturing facilityIncorrect

4. Which of the following is an example of manufacturing overhead costs
     a. supervisors on the production lineWorkers on the production line are direct labor. (b.) Materials that are a significant part of the product are direct materials (c.) Advertising is a period expense (d.) Supervisors do not touch the product with the purpose of making it and they are necessary costs to get the product manufactured, which is manufacturing overhead.
     b. workers on the production lineIncorrect
     c. materials that are a significant part of the productIncorrect
     d. advertisingIncorrect

5. Conversion costs are
     a. direct materials plus direct laborIncorrect
     b. direct labor plus manufacturing overheadBy definition, conversion costs are 'direct labor + manufacturing overhead'. They are product costs and not expensed as incurred (c.) Manufacturing overhead is an indirect cost, so it is not only direct costs only (d.)
     c. expensed as incurredIncorrect
     d. direct costs onlyIncorrect

6. Which of the following is an example of an administrative period cost?
     a. travel expense related to sales peopleIncorrect
     b. travel expense related to executive managementTravel for salespeople and advertising are period costs, but they are selling costs and not administrative (a. & c.) Rent at the manufacturing facility is a product cost and is manufacturing overhead. Costs related to executive management are administrative.
     c. advertising costs for a new productIncorrect
     d. rent on the manufacturing facilityIncorrect

7. Direct costs are
     a. part of making the product, easy to determine how much is requiredDirect costs are direct labor and direct materials. (b. & d.) It is easy to determine how much of each is required to make the product.
     b. direct materials onlyIncorrect
     c. hard to determine for one productIncorrect
     d. direct labor onlyIncorrect

8. The cost of utilities and telephone would be classified as
     a. period costsIncorrect
     b. manufacturing overheadIncorrect
     c. product costsIncorrect
     d. it depends on which part of the company the costs are related toThese costs could be related to the corporate office and administrative operations. In this case, they would be period and administrative costs. They could be related to the manufacturing plant, in which case they would be a product cost and part of manufacturing overhead. It depends on which part of the company the costs are related to.

9. Selling and administrative costs
     a. are reported on the income statement as they are incurredThese costs are period costs and are expensed as they are incurred. They are not part of product costs or manufacturing overhead which is a product cost (b. & c.). They may or may not be more than it costs to make the product. (d)
     b. are part of overhead at the manufacturing plantIncorrect
     c. are product costsIncorrect
     d. are always higher than the cost to make the productIncorrect

10. Which of the following is an example of a direct labor cost?
     a. the worker in the warehouseIncorrect
     b. the worker operating the machine that makes the productThe warehouse worker is a period cost and expensed as incurred (a). Inspectors and people who clean are product costs and are part of manufacturing overhead (c. & d.). The worker operating the machine is directly involved in making the product and is a direct labor cost.
     c. the worker who inspects the productIncorrect
     d. the worker who cleans the manufacturing facilityIncorrect

11. Why are supervisors on the production line considered indirect labor?
     a. the supervisor has to touch the product to make the productIncorrect
     b. the supervisor is a necessary cost of manufacturing the product
         and it is difficult to determine how much of the salary is incurred
         to make one product.Indirect labor is an indirect manufacturing overhead cost that must be allocated because it is difficult to determine the cost to make one product. The cost occurs at the plant, but that is not the reason it is indirect labor (d.). Indirect labor is other labor costs incurred at the plant that does not touch the product to make the product. (a.) would be a direct labor cost. Manufacturing overhead is a product cost and becomes part of the cost of inventory (c.)

     c. supervisor salaries are expensed as incurredIncorrect
     d. because they are manufacturing overheadIncorrect

 

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12. Below is a list of costs incurred by a manufacturing company. State whether they
are (A.) direct materials, (B.) direct labor, (C.) manufacturing overhead or
(D.) period costs.

_____1. salaries for inspectors of the finished products
_____2. property taxes at the corporate headquarters
_____3. wages paid to those working on the production line
_____4. supervisors salaries
_____5. glue and nails used to make the product, not traceable
_____6. plastic that becomes part of the product
_____ 7. manufacturing machine depreciation
_____ 8. utilities at the manufacturing plant
_____ 9. maintanence and repairs done on equipment at the plant
_____10. advertising


13. Below is a list of costs usually incurred by a manufacturing company. State
whether they are (A.) direct materials, (B.) direct labor, (C.) manufacturing
overhead or (D.) period costs.

____ 1. insurance paid for manufacturing facility
____ 2. rent paid on the corporate office
____ 3. sales commissions paid to salesman
____ 4. salaries for the receptionist at the manufacturing facility
____ 5. human resources at the corporate office
____ 6. workers assembling the product
____ 7. depreciation on the building used for manufacturing
____ 8. utilities paid at the executive offices
____ 9. the door handle that goes on the door to be sold to the customer
____10. repairs to executive office computers

14. Indicate which of the following costs are product (PR) or period (PD)
for Ford Motor Corporation:
____ 1. windshields
____ 2. wages of assembly line manufacturing
____ 3 advertising on television
____ 4. insurance on the manufacturing facility
____ 5. property taxes on the corporate office
____ 6. salesmen auto expenses
____ 7. tires on automobiles sold
____ 8. salary of the warehouse supervisor
____ 9. salary of the production line supervisor
____ 10. inspector of the finished automobile

Important to note:

Anything that occurs at the plant that is not direct material or direct labor is
         manufacturing overhead. These are all product costs.
Anything related to corporate office is a period, administrative cost.
Anything related to identifying the customer and getting the product to the
         customer is a period, selling cost.
 Warehouse and inventory movement are period.
     


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