Problem 1-23A Importance of cost classification Bailey Manufacturing Company

Problem 1-23A Importance of cost classification

Bailey Manufacturing Company (BMC) was started when it acquired $40000 by issuing common stock. During the first year of operations the company incurred
specifically identifiable product costs (materials labor and overhead) amounting to $24000. BMC also incurred $16000 of engineering design and planning
costs. There was a debate regarding how the design and planning costs should be classified. Advocates of Option 1 believe that the costs should be
classified as general selling and administrative costs. Advocates of Option 2 believe it is more appropriate to classify the design and planning costs as
product costs. During the year BMC made 4000 units of product and sold 3000 units at a price of $14 each. All transactions were cash transactions.

Required