Multiple Choice
Which of the following costs should be included in the cost of buildings when recording the asset on the balance sheet?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which of the following is an element of inventory holding costs?
A
Freight-in costs
B
Cost of goods purchased
C
Sales commissions
D
Storage costs
Verified step by step guidance1
Understand the concept of inventory holding costs: These are costs incurred to store and manage inventory until it is sold. They typically include expenses like storage, insurance, depreciation, and obsolescence.
Analyze each option provided: Freight-in costs are associated with transporting goods to the business and are considered part of the cost of goods purchased, not holding costs.
Evaluate the cost of goods purchased: This represents the direct cost of acquiring inventory and is not related to holding costs, as it pertains to the initial purchase rather than storage.
Consider sales commissions: These are costs incurred for selling goods and are classified as selling expenses, not inventory holding costs.
Identify storage costs: These are directly related to holding inventory, as they represent the expense of storing goods in warehouses or other facilities. Therefore, storage costs are an element of inventory holding costs.
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