Multiple Choice
Which of the following statements best describes how the 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
Which of the following best characterizes variable costs in the context of inventory accounting?
A
Variable costs are only recorded at the end of the accounting period under the periodic inventory system.
B
Variable costs change in total with the level of production or sales volume.
C
Variable costs remain constant per unit and in total regardless of production volume.
D
Variable costs include only fixed manufacturing overhead.
Verified step by step guidance1
Understand the concept of variable costs: Variable costs are expenses that change in total proportionally with the level of production or sales volume. Examples include direct materials and direct labor costs.
Analyze the options provided: Evaluate each statement to determine whether it aligns with the definition of variable costs.
Option 1: 'Variable costs are only recorded at the end of the accounting period under the periodic inventory system.' This is incorrect because variable costs are incurred and recorded throughout the production process, not just at the end of the period.
Option 3: 'Variable costs remain constant per unit and in total regardless of production volume.' This is incorrect because variable costs remain constant per unit but change in total as production volume changes.
Option 4: 'Variable costs include only fixed manufacturing overhead.' This is incorrect because fixed manufacturing overhead is not a variable cost; it is a fixed cost. Therefore, the correct characterization is: 'Variable costs change in total with the level of production or sales volume.'
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