Multiple Choice
Which of the following correctly represents the formula for Cost of Goods Sold (COGS) under the periodic inventory system?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
Under variable costing, which of the following costs would be included in finished goods inventory?
A
All manufacturing and non-manufacturing costs
B
Direct materials, direct labor, variable and fixed manufacturing overhead
C
Direct materials, direct labor, and variable manufacturing overhead
D
Direct materials and direct labor only
Verified step by step guidance1
Understand the concept of variable costing: Variable costing includes only variable manufacturing costs in the cost of finished goods inventory. Fixed manufacturing overhead is treated as a period cost and is not included in inventory under this method.
Identify the components of variable manufacturing costs: These typically include direct materials, direct labor, and variable manufacturing overhead. Fixed manufacturing overhead and non-manufacturing costs are excluded.
Analyze the options provided: Evaluate each option to determine which costs align with the principles of variable costing. For example, 'All manufacturing and non-manufacturing costs' would not be correct because non-manufacturing costs are excluded.
Focus on the correct answer: The correct answer is 'Direct materials, direct labor, and variable manufacturing overhead,' as these are the costs included in finished goods inventory under variable costing.
Review the exclusions: Fixed manufacturing overhead and non-manufacturing costs are treated differently under variable costing, ensuring clarity on what is excluded from inventory.
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