Multiple Choice
Which of the following is something that carrying inventory allows a company to do?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which of the following is NOT included in conversion costs?
A
Direct materials
B
Indirect labor
C
Direct labor
D
Manufacturing overhead
Verified step by step guidance1
Understand the concept of conversion costs: Conversion costs are the costs incurred to convert raw materials into finished goods. They typically include direct labor and manufacturing overhead.
Review the components of conversion costs: Direct labor refers to the wages paid to workers directly involved in production, while manufacturing overhead includes indirect costs such as utilities, depreciation, and indirect labor.
Identify what is excluded from conversion costs: Direct materials are not considered part of conversion costs because they are the raw materials used in production, not the costs associated with converting those materials into finished goods.
Analyze the options provided: Direct materials, indirect labor, direct labor, and manufacturing overhead. Compare each option to the definition of conversion costs.
Conclude which option does not belong: Based on the analysis, direct materials are excluded from conversion costs, as they are not part of the conversion process but rather the input to be converted.
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