Multiple Choice
Which of the following statements best describes how Cost of Goods Sold (COGS) is determined under the perpetual inventory system compared to the periodic inventory system?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
The cost of materials used to make a good or provide a service is classified as which type of cost?
A
Period cost
B
Direct cost
C
Indirect cost
D
Administrative cost
Verified step by step guidance1
Understand the definition of each type of cost: Direct cost refers to costs that can be directly traced to the production of a specific good or service. Indirect cost refers to costs that cannot be directly traced to a specific product or service but are necessary for production. Administrative cost refers to expenses related to the general management of the business. Period cost refers to costs that are not directly tied to production and are expensed in the period incurred.
Identify the nature of the cost in question: The cost of materials used to make a good or provide a service is directly tied to the production process and can be traced to the specific product or service being produced.
Match the cost type to its definition: Since the cost of materials is directly traceable to the production of goods or services, it aligns with the definition of a direct cost.
Eliminate incorrect options: Period cost, administrative cost, and indirect cost do not fit the description of the cost of materials used in production. These costs are either not directly tied to production or cannot be traced to a specific product.
Conclude that the correct classification for the cost of materials used to make a good or provide a service is 'Direct cost'.
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