Introduction
Grear Rafting Company, owned by Peggy Grear is a company that provides rafting services to rafters. Grear Rafting Company, henceforth referred to as Grear Rafting, has just gone through its first season in business on which it provided rafting services to 1,048 rafters for seven (7) days. During these seven (7) days, Grear Rafting also provided meals to the rafters three times a day, it also provides the rafts used during the season. During its first season, however, Grear Rafting experienced a loss. Peggy Grear has enough savings to get Grear Rafting through another season or two of business, but Grear Rafting would have to shut its business down if it does not make a profit (Houston Baptist University, 2012). In this paper,…show more content… * Compensation paid to guides ($471,600): the compensation paid to the guides is a product cost because the compensation is paid for the specific rafting season concerned; it is not a long term payment to the guides. * T-shirts and Hats provided to rafters ($31,440): this is a product cost because the t-shirts and hats provided to the rafters are purchased for the specific season based on how many rafters available. They are not purchased on a long-term basis. 2. Period Cost: Period costs are costs that are not carried in inventory; all costs that are not product costs. That is, all areas of the value chain except for production (Rich et al, 2010). For example, costs of advertising, salaries to the CEO, and research and development activities are not added to inventory, thereby making them period costs (Rich et al, 2010). The period costs incurred by Grear Rafting include: * Advertising expense ($50,000): the advertising cost is only incurred when Grear Rafting advertises the company for rafting services. * Salary of office manager ($16,500): the salary of the office manager is a cost that does not deal with production, or in this case, with the activities of Grear Rafting during this season. * Office utility expense ($3,850): this is a period cost because the cost is expensed in the period it occurs.
