Multiple Choice
Which of the following is the most important reason for calculating individual product costs in a company's inventory system?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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In managerial decision-making, service firms should focus on _____ costs.
A
manufacturing
B
operating
C
cost of goods sold
D
inventory
Verified step by step guidance1
Understand the context of the question: Service firms differ from manufacturing firms because they do not produce physical goods. Therefore, concepts like 'manufacturing costs,' 'cost of goods sold,' and 'inventory' are less relevant to service firms.
Define 'operating costs': Operating costs are expenses incurred during the normal functioning of a business, such as salaries, rent, utilities, and other overheads. These are crucial for service firms as they directly impact profitability.
Eliminate irrelevant options: Manufacturing costs, cost of goods sold, and inventory are terms primarily associated with businesses that produce or sell physical goods. Service firms do not deal with these costs in the same way.
Focus on operating costs: Since service firms rely on providing services rather than goods, their decision-making should prioritize managing and optimizing operating costs to ensure efficiency and profitability.
Apply this understanding to managerial decision-making: Managers in service firms should analyze operating costs to identify areas for cost reduction, improve resource allocation, and enhance overall financial performance.
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