Which of the following is an example of a period cost in a company that manufactures clothing?

• A. Direct materials used in production
• B. Factory supervisor's salary
• C. Sales office rent
• D. Depreciation on manufacturing equipment

Answer: (C)

Verified step by step guidance

1. Understand the concept of period costs: Period costs are expenses that are not directly tied to the production process. These costs are incurred over a specific period and are typically associated with non-manufacturing activities, such as selling, administrative, or general expenses.
2. Differentiate between product costs and period costs: Product costs include direct materials, direct labor, and manufacturing overhead, which are directly related to the production of goods. Period costs, on the other hand, are not part of the manufacturing process and are expensed in the period they are incurred.
3. Analyze each option provided: Direct materials used in production and depreciation on manufacturing equipment are product costs because they are directly tied to the production process. The factory supervisor's salary is also a product cost as it is part of manufacturing overhead.
4. Identify the correct example of a period cost: Sales office rent is a period cost because it is related to selling and administrative activities, not the production process.
5. Conclude that period costs are expensed in the period they occur and do not become part of the inventory value, unlike product costs which are capitalized until the goods are sold.