Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

Financial Accounting

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

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Multiple Choice

Which of the following costs are most likely to be classified as variable in the calculation of Cost of Goods Sold under both perpetual and periodic inventory systems?

Direct materials used in production

Factory rent expense

Salaries of administrative staff

Depreciation on manufacturing equipment

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Verified step by step guidance

Understand the concept of variable costs: Variable costs are expenses that change in proportion to the level of production or activity. In the context of Cost of Goods Sold (COGS), these costs typically include direct materials and direct labor, as they vary with production levels.

Analyze each cost provided in the problem: Direct materials used in production are variable costs because they increase or decrease based on the quantity of goods produced. Factory rent expense, salaries of administrative staff, and depreciation on manufacturing equipment are fixed costs, as they do not change with production levels.

Relate the classification of costs to inventory systems: Both perpetual and periodic inventory systems calculate COGS, and the classification of costs (variable vs. fixed) remains consistent across these systems. Direct materials are always considered variable costs in COGS calculations.

Exclude fixed costs from the classification of variable costs: Factory rent expense, salaries of administrative staff, and depreciation on manufacturing equipment are fixed costs and do not vary with production levels. These costs are not included in the variable cost calculation for COGS.

Conclude that direct materials used in production are the most likely to be classified as variable costs in the calculation of COGS under both inventory systems, as they directly depend on the production activity.