Multiple Choice
Which of the following costs is most likely to be classified as a fixed cost in the context of inventory accounting?
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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 would NOT be included as part of manufacturing overhead?
A
Depreciation on factory equipment
B
Factory supervisor's salary
C
Factory utilities expense
D
Direct materials used in production
Verified step by step guidance1
Understand the concept of manufacturing overhead: Manufacturing overhead includes all indirect costs associated with the production process, such as factory utilities, factory supervisor's salary, and depreciation on factory equipment. These costs are not directly traceable to specific units of production.
Identify the costs listed in the problem: Depreciation on factory equipment, factory supervisor's salary, and factory utilities expense are all examples of indirect costs that fall under manufacturing overhead.
Recognize the exception: Direct materials used in production are considered direct costs because they can be directly traced to the production of specific units. They are not part of manufacturing overhead.
Compare direct costs and indirect costs: Direct costs, such as direct materials and direct labor, are directly attributable to the production of goods. Indirect costs, such as factory utilities and supervisor salaries, are part of manufacturing overhead because they support the production process but cannot be directly traced to specific units.
Conclude that direct materials used in production are excluded from manufacturing overhead because they are classified as direct costs rather than indirect costs.
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