Multiple Choice
Which of the following formulas correctly represents the relationship between inventory and cost of goods sold (COGS) under both perpetual and periodic inventory systems?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
In the context of a merchandising company, cost of goods sold, direct materials, and commissions are all examples of which type of costs?
A
Product and period costs
B
Only product costs
C
Administrative costs
D
Only period costs
Verified step by step guidance1
Understand the definitions of product costs and period costs: Product costs are directly associated with the production or purchase of goods, such as direct materials and cost of goods sold. Period costs are expenses that are not tied to production, such as administrative costs and commissions.
Identify the nature of cost of goods sold: Cost of goods sold is a product cost because it represents the direct cost of goods that have been sold during a period.
Analyze direct materials: Direct materials are also product costs because they are integral to the production or purchase of goods.
Evaluate commissions: Commissions are considered period costs because they are selling expenses incurred during a specific period and are not directly tied to the production of goods.
Determine the correct classification: Based on the analysis, cost of goods sold and direct materials are product costs, while commissions are period costs. Therefore, the correct classification involves both product and period costs.
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