Q2TI_3 - Horngren'S Financial And Managerial Accounting

Question

Identify each cost as a period cost or a product cost. If it is a product cost, further indicate if the cost is direct materials, direct labor, or manufacturing overhead. Then determine if the product cost is a prime cost and/or a conversion cost. 

8. Property taxes on the factory

Step-by-Step Solution

Answer

It is product cost, manufacturing overhead and it is a conversion cost.

Step 1: Definition of the property tax

The property tax is defined as the compulsory payment to the government on the property owned by some individual or legal entity.

Step 2: Identification of costs

The property tax is considered as the product cost as it is associated with the production of goods.

It will be manufacturing overhead as it does not affect production directly. It is a conversion cost.