Scott Hiqqins. the new Plant Manaqer of Old Citv Manufacturing Plant Number 7. has just reviewed a draft of his year-end financial statements. Higgins receives a year-end bonus of 7.5% of the plant's operating income before tax The year-end income statement provided by the plant's controller was disappointing to say the least. After reviewing the numbers. Higgins demanded that his controller go back and "work the numbers" again Higgins insisted that if he didn't see a bletter operating income number the next time around he would be forced to look for a new controller. Requirement 2. Is Higgins correct in his justification that these costs "are definitely related to our product." The controller correct in his justification with respect to classifying costs as product or period costs, this determination is made by Generally Accepted Accounting Principles (GAAP), plant controllers Research and development, as well as all costs related to warehousing and distribution of goods, should be classified as and be period costs, product costs. expensed as incurred reflected as an asset in the balance sheet