Multiple Choice
Which of the following costs are most likely to be classified as variable in the calculation of Cost of Goods Sold under both perpetual and periodic inventory systems?
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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 included in both prime cost and conversion cost?
A
Manufacturing overhead
B
Direct labor
C
Direct materials
D
Indirect materials
Verified step by step guidance1
Understand the definitions of prime cost and conversion cost: Prime cost includes direct materials and direct labor, while conversion cost includes direct labor and manufacturing overhead.
Identify the components of each cost category: Prime cost = Direct materials + Direct labor; Conversion cost = Direct labor + Manufacturing overhead.
Determine the common element between prime cost and conversion cost: Direct labor is included in both categories because it is a shared component.
Exclude other options that do not fit both categories: Manufacturing overhead is only part of conversion cost, and direct materials are only part of prime cost.
Conclude that the correct answer is Direct labor, as it is the only element included in both prime cost and conversion cost.
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