Answer (C) is correct . Product costs, also called inventoriable costs, are capitalized as part of finished goods inventory. They eventually become a component of cost of goods sold. Period costs are expensed as incurred, i.e., they are not capitalized in finished goods inventory and are thus excluded from cost of goods sold. Plunkett’s product and period costs can be calculated as follows: ? Product Period Costs Costs Direct materials $??56,000 Direct labor 179,100 Variable overhead 154,000
Answer (A) is incorrect because The amounts of $235,100 and $914,000 result from treating overhead as a period, rather than a product, cost.
Answer (B) is incorrect because The amounts of $497,500 and $651,600 are the totals, respectively, of the variable and fixed, not the product and period, costs.
Answer (D) is incorrect because This combination of costs results from improperly classifying the uninsured loss as a product cost.
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In addition, the company suffered a $27,700 uninsured factory fire loss during the year. What were Plunkett’s product costs and period costs for last year?