Multiple Choice
Which of the following best describes costs that are crucial parts of the finished product in the context of inventory accounting?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which type of cost is the amount that would remain if a segment is eliminated?
A
Direct cost
B
Unavoidable cost
C
Variable cost
D
Avoidable cost
Verified step by step guidance1
Understand the concept of segment elimination: When a segment (e.g., a product line, department, or division) is eliminated, certain costs associated with that segment may remain, while others may disappear.
Define unavoidable costs: These are costs that will continue to exist even if the segment is eliminated. Examples include fixed costs like rent or salaries for employees who are not directly tied to the segment.
Differentiate between avoidable and unavoidable costs: Avoidable costs are those that can be eliminated when the segment is removed, such as direct costs specifically tied to the segment. Unavoidable costs, on the other hand, persist regardless of the segment's existence.
Analyze the options provided: Direct costs and variable costs are typically avoidable costs because they are directly tied to the segment's operations. Unavoidable costs are the correct answer because they represent the costs that remain after elimination.
Conclude the reasoning: The type of cost that remains when a segment is eliminated is an unavoidable cost, as it cannot be directly attributed to the segment and does not disappear with its removal.
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