Multiple Choice
In a manufacturing company using a perpetual inventory system, how are the units completed and transferred out during a period calculated?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
Which of the following is typically included in the unit product cost under both perpetual and periodic inventory systems?
A
Interest expense and income tax expense
B
Only direct materials and direct labor
C
Selling and administrative expenses
D
Direct materials, direct labor, and manufacturing overhead
Verified step by step guidance1
Understand the concept of unit product cost: Unit product cost refers to the total cost incurred to produce a single unit of product. It typically includes direct materials, direct labor, and manufacturing overhead.
Clarify the difference between perpetual and periodic inventory systems: Both systems track inventory, but the method of recording transactions differs. However, the components of unit product cost remain the same under both systems.
Identify the components of unit product cost: Direct materials (raw materials used in production), direct labor (wages paid to workers directly involved in production), and manufacturing overhead (indirect costs like factory utilities and depreciation) are included.
Exclude non-manufacturing costs: Selling and administrative expenses, interest expense, and income tax expense are not part of unit product cost because they are not directly related to the production process.
Conclude that under both perpetual and periodic inventory systems, the unit product cost includes direct materials, direct labor, and manufacturing overhead, as these are the costs directly tied to manufacturing the product.
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