Multiple Choice
Which of the following types of companies would be most likely to use process costing to determine Cost of Goods Sold under either a perpetual or periodic 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 under both the perpetual and periodic inventory systems?
A
Sales commissions
B
Direct materials used in production
C
Advertising expense
D
Office supplies expense
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. They are capitalized as inventory and expensed as cost of goods sold when the product is sold.
Differentiate between product costs and period costs: Period costs, such as sales commissions, advertising expenses, and office supplies expenses, are not directly tied to production. They are expensed in the period they are incurred and do not become part of inventory.
Recognize the role of inventory systems: Both perpetual and periodic inventory systems track product costs as part of inventory. The perpetual system updates inventory continuously, while the periodic system updates inventory at the end of the accounting period.
Identify direct materials as a product cost: Direct materials are raw materials that are directly used in the production of goods. These are always considered product costs under both inventory systems because they are integral to the manufacturing process.
Conclude that direct materials used in production are the correct answer: Since direct materials are a product cost and are treated the same way under both perpetual and periodic inventory systems, they are the correct choice in this scenario.
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