Multiple Choice
Which inventory accounting method continuously updates the cost of goods sold and inventory balances with each purchase and sale transaction?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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In the context of the value chain, which of the following best represents the total cost for the production category?
A
Direct materials, direct labor, and manufacturing overhead
B
Research and development costs
C
Cost of goods sold and operating expenses
D
Selling, general, and administrative expenses
Verified step by step guidance1
Understand the concept of the value chain: The value chain represents the series of activities that businesses perform to deliver a product or service to the market. It includes categories such as production, research and development, marketing, and distribution.
Focus on the production category: The production category specifically refers to the costs incurred in manufacturing or creating a product. These costs are directly tied to the production process.
Identify the components of production costs: Production costs typically include direct materials (raw materials used in production), direct labor (wages paid to workers directly involved in production), and manufacturing overhead (indirect costs such as utilities, depreciation, and factory maintenance).
Eliminate unrelated categories: Research and development costs, selling, general, and administrative expenses, and operating expenses are not directly tied to the production process. These costs belong to other categories in the value chain.
Conclude that the total cost for the production category is represented by the sum of direct materials, direct labor, and manufacturing overhead, as these are the costs directly associated with manufacturing a product.
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