Multiple Choice
Which of the following is an example of finished-goods inventory for an apparel company?
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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 used to calculate the Cost of Goods Sold (COGS) in a manufacturing business?
A
Sales commissions
B
Raw materials used
C
Direct labor costs
D
Factory overhead
Verified step by step guidance1
Understand the concept of Cost of Goods Sold (COGS) in a manufacturing business. COGS represents the direct costs incurred in producing goods that are sold during a specific period. It includes costs directly tied to production, such as raw materials, direct labor, and factory overhead.
Review the components typically included in COGS calculation: Raw materials used (the physical inputs for production), Direct labor costs (wages paid to workers directly involved in manufacturing), and Factory overhead (indirect costs like utilities and depreciation related to production).
Identify the item that does not fit the definition of COGS. Sales commissions are costs associated with selling the product, not producing it. These are classified as selling expenses rather than production costs.
Clarify the distinction between production costs (COGS) and selling expenses. Selling expenses, such as sales commissions, are incurred after the product is manufactured and are not part of the COGS calculation.
Conclude that sales commissions are NOT used to calculate the Cost of Goods Sold (COGS) in a manufacturing business, as they are unrelated to the production process.
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