Which of the following costs are capitalized as inventory during the completion of products under both perpetual and periodic inventory systems?

• A. Product costs
• B. Selling expenses
• C. Administrative expenses
• D. Period costs

Answer: (A)

Verified step by step guidance

1. Understand the concept of capitalized costs: Capitalized costs are those that are included in the value of inventory and are expensed when the inventory is sold. These costs are directly related to the production or acquisition of inventory.
2. Identify product costs: Product costs include direct materials, direct labor, and manufacturing overhead. These costs are directly tied to the production of goods and are capitalized as inventory under both perpetual and periodic inventory systems.
3. Differentiate product costs from period costs: Period costs, such as selling expenses and administrative expenses, are not directly related to the production of inventory. These costs are expensed in the period they are incurred and are not capitalized as inventory.
4. Understand the treatment under inventory systems: Both perpetual and periodic inventory systems capitalize product costs as inventory. The difference lies in how inventory is tracked, but the classification of costs remains the same.
5. Conclude that only product costs are capitalized as inventory: Selling expenses, administrative expenses, and other period costs are excluded from inventory capitalization under both inventory systems.