what effect would the reclassification of salary and the office rent have on the company's product cost
The reclassification of salary and office rent can have an effect on the company's product cost. Let's break down each element separately:
1. Reclassification of Salary:
When it comes to determining product cost, only the direct labor costs associated with the production of goods should be included. If salary costs that were previously classified as direct labor costs are reclassified as indirect costs (such as administrative or support staff), it means that these costs will no longer be directly allocated to the products being produced. Therefore, the reclassification of salary can result in a decrease in the direct labor cost component of the product cost. As a result, the overall product cost may be reduced.
2. Reclassification of Office Rent:
Similar to salary, when accounting for product cost, only costs directly related to production should be considered. If office rent, previously categorized as an indirect cost, is reclassified as a direct cost (if, for example, the office space is specifically used for production purposes), it means that this cost will now be allocated directly to the products being produced. Consequently, the reclassification of office rent can result in an increase in the overall product cost.
It is important to note that these effects on product cost will depend on the specific circumstances and accounting practices of each company. Companies may have different ways of classifying costs, and the impact on product cost will vary accordingly. To get a more accurate understanding of the effect on the company's product cost, it is advised to consult with the company's accounting or finance department and review the specific details of the reclassification.