Question: Mr Ed the manager of Stick Horses Manufacturing wants to
Mr. Ed, the manager of Stick Horses Manufacturing, wants to treat all depreciation as a product cost arguing that without the buildings ( administrative as well as manufacturing), the company could not produce the product; therefore, depreciation on administrative facilities should be treated as a product cost and allocated to the production process and thereby cost of goods sold. He further argues that it makes no difference in the long run, a cost is a cost and all costs end up on the income statement. Do you agree with his argument? Why or why not?
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