The Peterson Company incurred the following costs in the month of May: $$\begin{array} { l l }
\text { Direct materials purchased } & \$ 12,000 \
\text { Commissions paid to salespeople } & \$ 5,000 \
\text { Direct labor paid } & \$ 9,000 \
\text { Manufacturing plant utility costs } & \$ 19,000 \
\text { Advertising costs } & \$ 2,000
\end{array}$$ The company's product costs total:
A)$45,000
B)$47,000
C)$40,000
D)$42,000

Question

The Peterson Company incurred the following costs in the month of May: $$\begin{array} { l l } 
\text { Direct materials purchased } & \$ 12,000 \
\text { Commissions paid to salespeople } & \$ 5,000 \
\text { Direct labor paid } & \$ 9,000 \
\text { Manufacturing plant utility costs } & \$ 19,000 \
\text { Advertising costs } & \$ 2,000
\end{array}$$ The company's product costs total:
A)$45,000
B)$47,000
C)$40,000
D)$42,000

Quizplus · Accepted Answer

Product costs include all costs involved in acquiring or making a product, which are direct materials, direct labor, and manufacturing overhead. In this case, direct materials ($12,000), direct labor ($9,000), and manufacturing plant utility costs ($19,000) are considered product costs, totaling $40,000. Commissions paid to salespeople and advertising costs are period costs, not product costs.

The Peterson Company Incurred the Following Costs in the Month