Question

Which of the following would NOT be treated as a product cost for external financial reporting purposes?

1) Depreciation on a factory building
2) Salaries of factory workers
3) Indirect labor in the factory
4) Advertising expense

Answer 1

Advertising expense is not treated as a product cost for external financial reporting purposes; it is classified as a selling, general, and administrative expense.

Step-by-step explanation:

The item that would NOT be treated as a product cost for external financial reporting purposes among those listed is advertising expense. Advertising expense is not treated as a product cost for external financial reporting purposes; it is classified as a selling, general, and administrative expense.

Product costs include direct materials, direct labor, and overhead costs that are directly attributable to the production process. Depreciation on a factory building, salaries of factory workers, and indirect labor in the factory are all costs that are directly related to the manufacturing process and would be considered product costs. However, advertising expense is a marketing cost and would be classified as a selling, general, and administrative expense (SG&A), not a product cost.