Reference no: EM131817816

Naoki Manufacturing Company (NMC) was started when it acquired $50,000 by issuing common stock. During the first year of operations, the company incurred specifically identifiable product costs (materials, labor, and overhead) amounting to $26,550. NMC also incurred $15,300 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, NMC made 4,500 units of product and sold 4,000 units at a price of $24.00 each. All transactions were cash transactions.