Multiple Choice
Which of the following costs are NOT included in the cost of manufacturing a product?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which of the following costs is most likely to be classified as a fixed cost in the context of inventory accounting?
A
Direct materials used
B
Shipping costs for each unit sold
C
Sales commissions
D
Factory rent
Verified step by step guidance1
Understand the concept of fixed costs: Fixed costs are expenses that do not change with the level of production or sales activity. They remain constant regardless of the number of units produced or sold.
Analyze each option: Direct materials used are variable costs because they change with the number of units produced. Shipping costs for each unit sold are also variable costs, as they depend on the number of units sold. Sales commissions are variable costs because they are typically calculated as a percentage of sales revenue.
Identify the correct classification: Factory rent is a fixed cost because it does not vary with production levels. Whether the factory produces one unit or thousands, the rent remains the same.
Relate fixed costs to inventory accounting: In inventory accounting, fixed costs like factory rent are often included in overhead costs, which are allocated to the cost of goods manufactured.
Conclude the reasoning: Factory rent is the most likely cost to be classified as a fixed cost in this context because it meets the definition of a fixed cost and is relevant to inventory accounting.
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