Multiple Choice
Which of the following best describes the journal entry to record the cost of goods sold under a perpetual inventory system in process costing?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
Within the relevant range of activity, which type of costs remain constant in total?
A
Variable costs
B
Direct materials costs
C
Fixed costs
D
Mixed costs
Verified step by step guidance1
Understand the concept of cost behavior: Costs can be classified into fixed, variable, and mixed costs based on how they behave with changes in activity levels.
Define fixed costs: Fixed costs are expenses that remain constant in total regardless of changes in the level of activity within the relevant range. Examples include rent, salaries, and insurance.
Contrast fixed costs with variable costs: Variable costs change in total proportionally with the level of activity. For example, direct materials costs increase as more units are produced.
Explain mixed costs: Mixed costs contain both fixed and variable components. For example, a utility bill may have a fixed base charge plus a variable charge based on usage.
Conclude that within the relevant range of activity, fixed costs remain constant in total, while variable and mixed costs fluctuate based on activity levels.
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