Tesla, a vehicle manufacturer, incurs the following costs. a. Classify each cost as either a product or a period cost. If a product cost, identify it as direct materials, direct labor, or factory overhead, and then as a prime and/or conversion cost.
b. Classify each product cost as either a direct cost or an indirect cost using the product as the cost object.

1. Factory utilities
2. Advertising
3. Amortization of patents on factory machine
4. State and federal income taxes
5. Office supplies used
6. Insurance on factory building
7. Wages to assembly workers

a. Classify each cost as either a product or a period cost. If a product cost, identify it as direct materials, direct labor, or factory overhead, and then as a prime and/or conversion cost.

1. Factory utilities - Product cost

Factory utilities are direct materials used in the production process, therefore, they are a product cost.

2. Advertising - Period cost

Advertising is a period cost they are not directly related with the production process, but mostly with the passing of time.

3. Amortization of patents on factory machine - Period cost

Amortization is also a period cost. Amortization is the loss of value of an intangible asset over a period of time.

4. State and federal income taxes - Period cost

Taxes are not directly related to production, they are periodical payments to the state.

5. Office supplies used - Period cost

Office supplies are a general administrative expense, and general administrative expenses are considered period costs.

6. Insurance on factory building - Period cost

General administrative expenses like insurance are considered period costs.

7. Wages to assembly workers - Product cost

Wages are direct labor costs, and as a result, they are product costs.

b. Classify each product cost as either a direct cost or an indirect cost using the product as the cost object.

1. Factory utilities - direct cost

Factory utilities are directly used in the production process, it is a direct cost.

2. Advertising - indirect cost

Advertising expenses are not directly related to the production of a good, therefore, they are an indirect cost.

3. Amortization of patents on factory machine - indirect cost

Amortization on a patent is an indirect cost, because while the patent determines some characteristics of the product, it is not directly part of the production process.

4. State and federal income taxes - indirect cost

Taxes are not directly related to the production of the good, therefore, they are an indirect cost.

5. Office supplies used - indirect cost

Office supplies are administrative overhead: they are necessary, but not directly related to the production process.

6. Insurance on factory building - indirect cost

Insurance is also administrative overhead. They are an indirect cost.

7. Wages to assembly workers - direct cost

Wages to assembly workers are the cost of direct labor, as a result, they are a direct cost.

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