Multiple Choice
Which of the following statements best describes how the calculation of Cost of Goods Sold (COGS) differs between the perpetual and periodic inventory systems when performing cost-volume analysis?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which of the following costs are NOT included in the cost of manufacturing a product?
A
Direct materials
B
Factory overhead
C
Direct labor
D
Advertising expenses
Verified step by step guidance1
Step 1: Understand the concept of manufacturing costs. Manufacturing costs are the costs incurred to produce a product and typically include direct materials, direct labor, and factory overhead.
Step 2: Define direct materials. These are the raw materials that are directly used in the production of a product, such as wood for furniture or fabric for clothing.
Step 3: Define direct labor. This refers to the wages paid to workers who are directly involved in the production process, such as assembly line workers.
Step 4: Define factory overhead. Factory overhead includes indirect costs related to production, such as utilities, depreciation of equipment, and maintenance of the production facility.
Step 5: Recognize that advertising expenses are not part of manufacturing costs. Advertising expenses are classified as selling and administrative expenses, which are incurred to promote and sell the product rather than to manufacture it.
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