Multiple Choice
Which of the following statements is true regarding the calculation of Cost of Goods Sold (COGS) under the perpetual and periodic inventory systems?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
Which type of cost changes in total, in direct proportion to changes in activity level?
A
Mixed cost
B
Variable cost
C
Sunk cost
D
Fixed cost
Verified step by step guidance1
Step 1: Understand the concept of variable costs. Variable costs are expenses that change in total directly in proportion to changes in the activity level or production volume. Examples include raw materials and direct labor costs.
Step 2: Compare variable costs with other types of costs mentioned in the problem. Fixed costs remain constant regardless of activity level (e.g., rent or salaries). Mixed costs have both fixed and variable components. Sunk costs are past costs that cannot be recovered and do not change with activity level.
Step 3: Identify the key characteristic of variable costs: they increase or decrease in total as the activity level changes, but the cost per unit remains constant.
Step 4: Relate this characteristic to the question. The problem asks for the type of cost that changes in total in direct proportion to changes in activity level. This matches the definition of variable costs.
Step 5: Conclude that the correct answer is 'Variable cost' based on the explanation and comparison of cost types.
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