Multiple Choice
Under both the perpetual and periodic inventory systems, when does the cost of inventory become an expense (Cost of Goods Sold) on the income statement?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which of the following will be included in manufacturing overhead costs?
A
Sales commissions paid to sales staff
B
Factory utilities expense
C
Direct labor wages paid to assembly workers
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, excluding direct materials and direct labor. These costs are necessary to operate the factory but are not directly traceable to specific products.
Review the options provided: Sales commissions paid to sales staff, factory utilities expense, direct labor wages paid to assembly workers, and direct materials used in production.
Eliminate direct costs: Direct labor wages and direct materials are considered direct costs because they can be directly traced to the production of specific products. These are not part of manufacturing overhead.
Exclude non-manufacturing costs: Sales commissions paid to sales staff are considered selling expenses and are not related to the manufacturing process. Therefore, they are not part of manufacturing overhead.
Identify the correct inclusion: Factory utilities expense is an indirect cost associated with operating the factory and is included in manufacturing overhead. This expense supports the production process but cannot be directly traced to specific products.
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Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory practice set
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