Multiple Choice
When a product is sold, how is the Cost of Goods Sold (COGS) reported in the profit and loss statement under the perpetual inventory system?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
Which of the following is considered a product cost for a manufacturer?
A
Interest expense on loans
B
Direct materials used in production
C
Advertising expenses
D
Office supplies for administrative staff
Verified step by step guidance1
Understand the concept of product costs: Product costs are costs that are directly associated with the production of goods. These include direct materials, direct labor, and manufacturing overhead.
Differentiate between product costs and period costs: Period costs are expenses that are not directly tied to production, such as administrative expenses, advertising, and interest expenses.
Analyze the options provided: Interest expense on loans, advertising expenses, and office supplies for administrative staff are all period costs because they are not directly related to the manufacturing process.
Identify direct materials used in production: Direct materials are tangible components that are directly used in the manufacturing of a product, making them a product cost.
Conclude that direct materials used in production are the correct answer because they are directly tied to the manufacturing process and are classified as product costs.
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