Multiple Choice
Which of the following best describes 'Cost of Goods Sold' (COGS) in the context of inventory accounting?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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The standard rate per unit that a company expects to pay for variable overhead equals the:
A
predetermined variable overhead rate
B
actual variable overhead incurred
C
applied fixed overhead rate
D
standard direct labor rate
Verified step by step guidance1
Understand the concept of variable overhead: Variable overhead refers to costs that vary with production levels, such as utilities or indirect materials. These costs are allocated to products based on a predetermined rate.
Recognize the term 'standard rate per unit': This is the rate the company expects to pay for variable overhead per unit of production, based on historical data or budgeted estimates.
Identify the correct term: The 'predetermined variable overhead rate' is the expected rate per unit used for budgeting and cost control purposes. It is calculated before production begins.
Eliminate incorrect options: The 'actual variable overhead incurred' refers to the real costs incurred during production, which may differ from the standard rate. The 'applied fixed overhead rate' relates to fixed costs, not variable costs. The 'standard direct labor rate' pertains to labor costs, not overhead.
Conclude that the correct answer is 'predetermined variable overhead rate,' as it aligns with the definition of the standard rate per unit for variable overhead.
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