Multiple Choice
In a manufacturing company, how is depreciation on delivery trucks (used to deliver finished goods to customers) classified for financial reporting purposes?
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5. Inventory
Merchandising Company vs. Manufacturing Company
Multiple Choice
In a manufacturing company, which of the following items is included in Raw Materials Inventory?
A
Steel and other direct materials that will be used in the production process
B
Sales salaries and advertising costs incurred during the period
C
Completed units ready for sale to customers
D
The cost of partially completed units still in production
Verified step by step guidance1
Understand the definition of Raw Materials Inventory: it includes all the basic materials and components that are purchased and used directly in the manufacturing process but have not yet been put into production.
Identify the nature of each item given in the problem: determine whether it is a direct material, a cost related to selling or administration, or related to work in progress or finished goods.
Recognize that 'Steel and other direct materials' are raw materials because they are basic inputs that will be transformed into finished products during manufacturing.
Note that 'Sales salaries and advertising costs' are period costs related to selling and administration, not part of inventory.
Understand that 'Completed units ready for sale' are Finished Goods Inventory, and 'partially completed units' are Work in Process Inventory, neither of which are Raw Materials Inventory.
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