Managerial Accounting Quiz: Product Vs Period Costs
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Product Vs Period CostsQuestion 1 of 20

For the month of June, a company had prime costs of ($300,000), conversion costs of ($400,000), and direct labor costs of ($100,000). The company's selling expenses were ($80,000) and general administrative expenses were ($120,000). What were the company's total period costs for June?

($200,000)
($600,000)
($700,000)
($800,000)
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Managerial Accounting Quiz

Managerial Accounting Quiz: Product Vs Period Costs

Practice Product Vs Period Costs in Managerial Accounting with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Product Vs Period Costs, giving you a quick way to practice the rules, question types, and explanations that matter most for Managerial Accounting.

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Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

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Question 1

For the month of June, a company had prime costs of ($300,000), conversion costs of ($400,000), and direct labor costs of ($100,000). The company's selling expenses were ($80,000) and general administrative expenses were ($120,000). What were the company's total period costs for June?

  1. ($200,000) (correct answer)
  2. ($600,000)
  3. ($700,000)
  4. ($800,000)
Explanation: Period costs consist of selling and administrative expenses. The information about prime costs (Direct Materials + Direct Labor) and conversion costs (Direct Labor + Manufacturing Overhead) relates to the calculation of product costs and is extraneous to the question asked. The total period costs are the sum of selling expenses and general administrative expenses: \80,000 + $120,000 = $200,000$.

Question 2

A furniture manufacturer paid its production workers ($200,000) in wages for the month. Of this amount, ($25,000) was for time when production was halted due to unexpected machine maintenance. The company also incurred ($80,000) in sales commissions and ($50,000) in factory supervisor salaries. What is the total amount of period costs for the month?

  1. ($80,000) (correct answer)
  2. ($105,000)
  3. ($130,000)
  4. ($155,000)
Explanation: Period costs are expensed in the period they are incurred and are not part of the product's inventoriable cost. In this scenario, only the sales commissions (($80,000)) are a period cost. The direct labor wages (\200,000 - $25,000 = $175,000$), the idle time wages (($25,000), which are treated as manufacturing overhead), and the factory supervisor salaries (($50,000), also manufacturing overhead) are all product costs.

Question 3

A management consulting firm has the following annual costs: ($1,200,000) for consultant salaries, ($300,000) for the sales team's salaries and commissions, ($250,000) for office rent (60% used by consultants, 40% by sales and administration), and ($150,000) for the CEO's salary. In a service company context, what is the total of costs that are analogous to product costs in a manufacturing firm?

  1. ($1,200,000)
  2. ($1,350,000) (correct answer)
  3. ($1,450,000)
  4. ($1,900,000)
Explanation: In a service firm, costs analogous to product costs are the direct and indirect costs of providing the service. This includes the consultant salaries (($1,200,000)), which are like direct labor. It also includes the portion of office rent attributable to the service-providing consultants (\250,000 \times 60% = $150,000),whichislikemanufacturingoverhead.Thesalesteam′scostsandtheCEO′ssalaryareperiodcosts.Totalcostsanalogoustoproductcostsare), which is like manufacturing overhead. The sales team's costs and the CEO's salary are period costs. Total costs analogous to product costs are $1,200,000 + $150,000 = $1,350,000$.

Question 4

Apex Manufacturing incurred ($100,000) in direct materials, ($150,000) in direct labor, and ($200,000) in manufacturing overhead to produce 10,000 units. The company also incurred ($80,000) in selling and administrative expenses. If Apex sold 8,000 units during the period, what is the total expense recognized on the income statement?

  1. ($360,000)
  2. ($424,000)
  3. ($440,000) (correct answer)
  4. ($530,000)
Explanation: The income statement includes both Cost of Goods Sold (a product cost) and period costs. First, calculate the cost per unit: (\100,000 + $150,000 + $200,000)/10,000units=($450,000)/10,000units=($45)perunit.COGSforthe8,000unitssoldis) / 10,000 units = ($450,000) / 10,000 units = ($45) per unit. COGS for the 8,000 units sold is 8,000 \times $45 = $360,000$. Period costs (selling and administrative expenses) of ($80,000) are expensed in full. Total expense on the income statement is ($360,000) (COGS) + ($80,000) (Period Costs) = ($440,000).

Question 5

A newly formed company incurred ($50,000) in manufacturing costs and ($20,000) in administrative expenses during its first month. The company produced 1,000 units and sold 700 units. Assuming all transactions were for cash, what is the net effect of these transactions on the company's total assets on the balance sheet at the end of the month?

  1. A decrease of ($70,000)
  2. An increase of ($15,000)
  3. A decrease of ($20,000)
  4. A decrease of ($55,000) (correct answer)
Explanation: First, calculate the total cash outflow, which decreases assets: \50,000 + $20,000 = $70,000.Next,determinethevalueoftheassetcreated(endinginventory).Thecostperunitis. Next, determine the value of the asset created (ending inventory). The cost per unit is $50,000 / 1,000 \text{ units} = $50.Thenumberofunsoldunitsis. The number of unsold units is 1,000 - 700 = 300.Thevalueofendinginventoryis. The value of ending inventory is 300 \text{ units} \times $50/\text{unit} = $15,000.Inventoryisanasset.Theneteffectontotalassetsisthedecreaseincashoffsetbytheincreaseininventory:. Inventory is an asset. The net effect on total assets is the decrease in cash offset by the increase in inventory: -$70,000 + $15,000 = -$55,000$.

Question 6

A manufacturing process occasionally produces defective units that can be reworked to meet quality standards. During March, the company incurred ($12,000) in labor and material costs to rework such units. This level of rework is considered normal for the process. The company also spent ($50,000) on its internal audit staff salaries and ($20,000) on rent for its finished goods warehouse. What is the total amount that should be treated as a product cost from this list?

  1. ($12,000) (correct answer)
  2. ($32,000)
  3. ($72,000)
  4. ($82,000)
Explanation: Product costs are costs of manufacturing. The cost of normal rework (($12,000)) is considered a product cost, typically included in manufacturing overhead. Internal audit staff salaries (($50,000)) are an administrative (period) cost. Rent on a finished goods warehouse (($20,000)) is a selling or storage cost incurred after production is complete, making it a period cost. Therefore, only the normal rework cost of ($12,000) is a product cost.

Question 7

A chemical processing plant incurred ($500,000) in costs to produce a batch of chemicals. The company's normal spoilage rate is 5% of goods that pass inspection. During the month, spoilage amounted to 8% of the value of completed units. The cost of all spoiled units was determined to be ($40,000). What is the total amount that should be charged to period costs from these events?

  1. ($0)
  2. ($15,000) (correct answer)
  3. ($25,000)
  4. ($40,000)
Explanation: The cost of normal spoilage is considered a product cost (part of manufacturing overhead). The cost of abnormal spoilage is treated as a period cost (a loss). The total spoilage cost is ($40,000), which corresponds to an 8% spoilage rate. The abnormal spoilage is the excess over the normal rate, which is 8%−5%=3%8\% - 5\% = 3\%. The portion of the spoilage cost treated as a period cost is proportional to the abnormal rate: (3% abnormal spoilage / 8% total spoilage) \times \40,000$ total spoilage cost = ($15,000).

Question 8

A manufacturing firm incurred the following salary costs: Plant Manager ($120,000), Corporate Controller ($150,000), Factory Maintenance Supervisor ($70,000), and Vice President of Marketing ($180,000). What is the total amount of salaries that would be classified as product costs?

  1. ($70,000)
  2. ($120,000)
  3. ($190,000) (correct answer)
  4. ($340,000)
Explanation: Product costs are costs incurred in the factory to produce goods. This includes the salaries of factory personnel. The Plant Manager's salary (($120,000)) and the Factory Maintenance Supervisor's salary (($70,000)) are both manufacturing overhead. The Corporate Controller's salary is an administrative period cost, and the VP of Marketing's salary is a selling period cost. Total product costs are \120,000 + $70,000 = $190,000$.

Question 9

A company reports ($50,000) in depreciation expense for the year. The assets being depreciated are ($300,000) of factory machinery and ($100,000) of office equipment, both depreciated using the straight-line method over the same useful life. The company also paid ($20,000) for factory utilities and ($15,000) for property taxes on the factory building. What is the total manufacturing overhead for the year?

  1. ($35,000)
  2. ($60,000)
  3. ($72,500) (correct answer)
  4. ($85,000)
Explanation: Manufacturing overhead (a product cost) includes all indirect manufacturing costs. First, allocate the total depreciation. The factory machinery represents \300,000 / ($300,000 + $100,000) = 75%oftheassetbase.Therefore,75of the asset base. Therefore, 75% of the depreciation expense is a product cost:0.75 \times $50,000 = $37,500.Theremaining25. The remaining 25% is a period cost. Add the other indirect manufacturing costs: factory utilities (($20,000)) and factory property taxes (($15,000)). Total MOH = $37,500 + $20,000 + $15,000 = $72,500$.

Question 10

A company purchased new factory equipment. The capitalized cost of the equipment was ($150,000). The company also incurred ($10,000) in training costs for equipment operators and paid a ($12,000) annual insurance premium on the factory building. First-year depreciation on the new equipment was ($15,000). What is the total amount of these specific costs that would be considered product costs for the first year?

  1. ($15,000)
  2. ($27,000)
  3. ($37,000) (correct answer)
  4. ($177,000)
Explanation: Product costs for the period include manufacturing overhead items. Depreciation on factory equipment (($15,000)) is MOH. Insurance on the factory building (($12,000)) is also MOH. Training costs for factory equipment operators (($10,000)) are manufacturing overhead since they directly relate to production operations. The capitalized cost of the equipment (($150,000)) is an asset on the balance sheet, not a product cost for the period (though its depreciation is). Therefore, the total product cost from this list is \15,000 + $12,000 + $10,000 = $37,000$.

Question 11

A company's utility cost is a mixed cost. The variable rate is ($2) per machine-hour, and the fixed cost is ($10,000) per month. The factory operates the machines, while the administrative offices do not. During the month, 15,000 machine-hours were recorded. The factory occupies 70% of the company's facility. How much of the month's utility cost is a product cost?

  1. ($28,000)
  2. ($30,000)
  3. ($37,000) (correct answer)
  4. ($40,000)
Explanation: Product costs include all costs related to manufacturing. The variable portion of the utility cost is directly tied to machine usage in the factory: 15,000 \text{ hours} \times \2/\text{hour} = $30,000.Thisisentirelyaproductcost.Thefixedportionof($10,000)mustbeallocatedbetweenmanufacturing(product)andadministration(period).Sincethefactoryoccupies70. This is entirely a product cost. The fixed portion of ($10,000) must be allocated between manufacturing (product) and administration (period). Since the factory occupies 70% of the facility, 70% of the fixed cost is allocated to product costs: $10,000 \times 70% = $7,000$. The total product cost is ($30,000) (variable) + ($7,000) (fixed) = ($37,000).

Question 12

A company began the month with ($30,000) in Work-in-Process inventory. During the month, it added ($100,000) of direct materials, ($120,000) of direct labor, and ($80,000) of manufacturing overhead to production. Ending Work-in-Process inventory was ($25,000). The company also paid ($60,000) in sales commissions and ($40,000) for the monthly rent on its corporate headquarters. What was the total period cost for the month?

  1. ($100,000) (correct answer)
  2. ($300,000)
  3. ($305,000)
  4. ($405,000)
Explanation: The question asks for the total period cost. All the information about product costs (direct materials, direct labor, manufacturing overhead) and Work-in-Process inventory is irrelevant to this specific question. Period costs are expensed as incurred and are not related to production. The period costs are sales commissions (($60,000)) and rent on corporate headquarters (($40,000)). The total period cost is \60,000 + $40,000 = $100,000$.

Question 13

For the year ended December 31, XYZ Corp. incurred the following costs:

  • Direct materials purchased: ($250,000)
  • Direct materials used in production: ($220,000)
  • Direct labor wages: ($300,000)
  • Factory supervisor salaries: ($90,000)
  • Sales commissions: ($75,000)
  • Depreciation on factory equipment: ($60,000)
  • Depreciation on corporate office building: ($40,000)
  • Advertising expenses: ($50,000)
  • Freight-in for raw materials: ($15,000)
  • Freight-out to customers: ($25,000)

Based on the information provided for XYZ Corp., what was the total product cost incurred for the year?

  1. ($670,000)
  2. ($750,000)
  3. ($715,000)
  4. ($685,000) (correct answer)
Explanation: Total product cost is the sum of direct materials used, direct labor, and manufacturing overhead. Direct materials used is ($220,000). Direct labor is ($300,000). Manufacturing overhead includes factory supervisor salaries (($90,000)), depreciation on factory equipment (($60,000)), and freight-in for raw materials (($15,000)). Total MOH = \90,000 + $60,000 + $15,000 = $165,000.Totalproductcost=. Total product cost = $220,000 + $300,000 + $165,000 = $685,000$. The other costs listed are period costs or, in the case of materials purchased, data not used in the calculation of costs incurred for production.

Question 14

A company manufactures and sells washing machines. During the year, it incurred ($5,000,000) in total manufacturing costs and sold 90% of the units produced. Based on past experience, the company accrues warranty expense equal to 2% of sales revenue. Sales revenue for the year was ($8,000,000). The company also spent ($300,000) on advertising. What is the total period cost for the year?

  1. ($160,000)
  2. ($300,000)
  3. ($460,000) (correct answer)
  4. ($4,960,000)
Explanation: Period costs include selling, general, and administrative expenses. Manufacturing costs are product costs. The estimated warranty expense is a selling cost, calculated as 2\% \times \8,000,000 = $160,000.Advertisingexpense(($300,000))isalsoasellingcost.Bothareperiodcosts.Totalperiodcostsfortheyearare. Advertising expense (($300,000)) is also a selling cost. Both are period costs. Total period costs for the year are $160,000 + $300,000 = $460,000$. The manufacturing cost information is used to calculate COGS, not period costs.

Question 15

A company incurred the following costs: direct materials used (($150,000)), property taxes on factory (($10,000)), salary of the company's CEO (($200,000)), depreciation on the sales team's cars (($15,000)), and costs of shipping goods to customers (($25,000)). What is the total inventoriable cost incurred during the period?

  1. ($150,000)
  2. ($160,000) (correct answer)
  3. ($200,000)
  4. ($400,000)
Explanation: Inventoriable costs are the same as product costs; they are capitalized as inventory. This includes direct materials, direct labor, and manufacturing overhead. From the list, direct materials used (($150,000)) and property taxes on the factory (($10,000), a form of MOH) are inventoriable. The CEO's salary (administrative), sales car depreciation (selling), and shipping to customers (selling) are all period costs. Total inventoriable cost is \150,000 + $10,000 = $160,000$.

Question 16

A retail company purchased merchandise for ($500,000). It paid ($20,000) in shipping costs to bring the merchandise to its store. Store rent was ($50,000), sales clerk salaries were ($80,000), and local advertising was ($30,000). Assuming none of the purchased merchandise remains in inventory, what were the total period costs?

  1. ($520,000)
  2. ($160,000) (correct answer)
  3. ($180,000)
  4. ($680,000)
Explanation: For a retailer, the inventoriable cost (product cost) is the cost of purchasing the goods plus any freight-in. Here, the product cost is \500,000 + $20,000 = $520,000.Periodcostsaretheoperatingexpensesofthebusiness,whichincludestorerent(($50,000)),salesclerksalaries(($80,000)),andadvertising(($30,000)).Totalperiodcostsare. Period costs are the operating expenses of the business, which include store rent (($50,000)), sales clerk salaries (($80,000)), and advertising (($30,000)). Total period costs are $50,000 + $80,000 + $30,000 = $160,000$.

Question 17

A company's direct laborers worked 10,000 regular hours at ($20)/hour and 1,000 overtime hours at ($30)/hour. The overtime resulted from a general high level of production activity, not a specific customer rush order. Which of the following statements correctly describes the treatment of the labor costs?

  1. ($230,000) is a product cost, allocated as ($220,000) to Direct Labor and ($10,000) to Manufacturing Overhead. (correct answer)
  2. ($230,000) is a product cost, allocated entirely to Direct Labor.
  3. ($200,000) is classified as Direct Labor, and ($30,000) is classified as Manufacturing Overhead.
  4. ($220,000) is a product cost, and ($10,000) is a period cost because it was incurred for overtime hours.
Explanation: When overtime is due to general production volume, the entire straight-time wage for all hours worked is treated as Direct Labor. Total hours are 11,000, so Direct Labor is 11,000 \text{ hours} \times \20/\text{hour} = $220,000.Theovertimepremium—theextraamountpaidperhour—istreatedasManufacturingOverhead.Thepremiumis. The overtime premium—the extra amount paid per hour—is treated as Manufacturing Overhead. The premium is $30 - $20 = $10$ per hour for 1,000 hours, totaling ($10,000). Both Direct Labor and Manufacturing Overhead are product costs.

Question 18

A bicycle manufacturer incurred the following costs: ($50,000) for shipping raw materials to its factory, ($30,000) for shipping completed bicycles to customers, ($400,000) for direct materials used, and ($250,000) for direct labor. Factory overhead, excluding any freight costs, was ($150,000). What were the total product costs for the period?

  1. ($800,000)
  2. ($830,000)
  3. ($850,000) (correct answer)
  4. ($880,000)
Explanation: Product costs include direct materials, direct labor, and manufacturing overhead. Manufacturing overhead includes all indirect costs of production. Freight-in (shipping costs for raw materials, ($50,000)) is considered a product cost and is included in overhead. Freight-out (shipping costs for finished goods, ($30,000)) is a selling expense and therefore a period cost. Total product costs are ($400,000) (DM) + ($250,000) (DL) + ($150,000) (MOH) + ($50,000) (Freight-in) = ($850,000).

Question 19

An electronics company incurred ($500,000) in research and development costs to create a new processor. It also spent ($75,000) for engineers to reconfigure the factory layout for the new manufacturing process and ($40,000) on salaries for the marketing team that developed the launch campaign. Direct materials for the first production run were ($200,000). What portion of these costs would be classified as period costs for financial reporting purposes?

  1. ($40,000)
  2. ($540,000) (correct answer)
  3. ($615,000)
  4. ($815,000)
Explanation: Period costs include all costs that are not product costs, such as selling and administrative expenses. Under GAAP, research and development costs (($500,000)) are expensed as incurred and are thus period costs. Marketing salaries (($40,000)) are selling expenses and also period costs. The cost to reconfigure the factory layout (($75,000)) is a manufacturing overhead cost, making it a product cost. Direct materials are product costs. Total period costs are \500,000 + $40,000 = $540,000$.

Question 20

Managerial accounting requires a careful distinction between product and period costs. What is the primary reason this distinction is crucial for external financial reporting under Generally Accepted Accounting Principles (GAAP)?

  1. To ensure that costs are allocated accurately to different departments for performance evaluation purposes.
  2. To properly value inventory on the balance sheet and measure cost of goods sold on the income statement. (correct answer)
  3. To provide managers with relevant cost information for making pricing and product-mix decisions.
  4. To separate fixed costs from variable costs to facilitate cost-volume-profit analysis.
Explanation: For external reporting under GAAP, the key reason to separate product and period costs is for correct financial statement presentation. Product costs are capitalized as inventory on the balance sheet and are only expensed as Cost of Goods Sold on the income statement when the product is sold. Period costs are expensed on the income statement in the period they are incurred. This matching of costs to the appropriate accounting period is fundamental to GAAP. The other choices describe internal management accounting objectives.