Multiple Choice
Which financial statement provides a summary that shows how much money a business has made or lost during a specific period using a single-step approach?
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4. Merchandising Operations
Single-step Income Statement
Multiple Choice
On a single-step income statement, which of the following would be classified as a period cost?
A
Direct labor
B
Factory overhead
C
Selling expenses
D
Direct materials used in production
Verified step by step guidance1
Understand the concept of period costs: Period costs are expenses that are not directly tied to the production process. These costs are incurred over a specific period and are typically associated with selling, administrative, or general business operations.
Review the classification of costs: Direct labor, factory overhead, and direct materials used in production are considered product costs because they are directly related to the manufacturing process. Selling expenses, on the other hand, are not tied to production and are classified as period costs.
Identify the correct classification: Selling expenses are incurred to promote and sell the product, such as advertising, sales commissions, and delivery expenses. These are considered period costs because they are not part of the manufacturing process.
Relate to the single-step income statement: In a single-step income statement, all revenues are grouped together, and all expenses are grouped together. Period costs like selling expenses are included in the expenses section, separate from product costs.
Conclude the classification: Based on the definitions and classifications, selling expenses are correctly identified as period costs, while direct labor, factory overhead, and direct materials used in production are product costs.
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