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

5. Inventory

Merchandising Company vs. Manufacturing Company

Financial Accounting

5. Inventory

Merchandising Company vs. Manufacturing Company

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

In a manufacturing company, how would a 5\% sales commission paid to sales personnel typically be classified?

As a manufacturing overhead cost

As a direct labor cost

As a selling expense

As a cost of goods sold

Previous problemNext problem

Verified step by step guidance

Understand the nature of the cost: A sales commission is a payment made to sales personnel based on the sales they generate. It is directly tied to selling activities rather than production or manufacturing processes.

Review the classification of costs: Costs in a manufacturing company are typically categorized into manufacturing overhead, direct labor, cost of goods sold, and selling expenses. Selling expenses are costs incurred to promote and sell products, such as advertising, sales commissions, and shipping costs.

Eliminate incorrect classifications: Manufacturing overhead includes indirect costs related to production, such as factory utilities and maintenance. Direct labor refers to wages paid to workers directly involved in production. Cost of goods sold represents the direct costs of producing goods sold during a period. None of these categories apply to sales commissions.

Identify the correct classification: Sales commissions are directly related to selling activities and are therefore classified as selling expenses. Selling expenses are part of operating expenses and are reported on the income statement.

Conclude the classification: Based on the analysis, a 5% sales commission paid to sales personnel is correctly classified as a selling expense, as it is incurred to support the sales function of the company.