Multiple Choice
Which of the following is a common mistake made by companies when assigning costs to segments under both perpetual and periodic inventory systems?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
Which of the following are typically included as cost components for self-constructed assets under U.S. GAAP?
A
Selling and administrative expenses
B
Interest costs incurred during the construction period
C
Only direct materials and direct labor
D
Direct materials, direct labor, and a portion of manufacturing overhead
Verified step by step guidance1
Understand the concept of self-constructed assets under U.S. GAAP: These are assets that a company builds for its own use rather than purchasing them from external vendors. The costs associated with constructing these assets are capitalized, meaning they are included in the asset's value on the balance sheet.
Identify the cost components typically included for self-constructed assets: U.S. GAAP allows the capitalization of direct materials, direct labor, a portion of manufacturing overhead, and interest costs incurred during the construction period.
Clarify why selling and administrative expenses are excluded: These costs are considered period costs under U.S. GAAP and are expensed in the period incurred rather than being capitalized as part of the asset.
Understand the role of interest costs: Interest costs incurred during the construction period can be capitalized as part of the asset's cost, provided they meet the criteria outlined in U.S. GAAP (e.g., the asset must be a qualifying asset, and the interest must be directly attributable to the construction).
Summarize the correct answer: The cost components for self-constructed assets under U.S. GAAP typically include direct materials, direct labor, a portion of manufacturing overhead, and interest costs incurred during the construction period. Selling and administrative expenses are excluded.
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