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?

• A. Direct materials used in production
• B. Factory rent expense
• C. Salaries of administrative staff
• D. Depreciation on manufacturing equipment

Answer: (A)

Verified step by step guidance

1. Understand the concept of variable costs: Variable costs are expenses that change in proportion to the level of production or activity. In the context of Cost of Goods Sold (COGS), these costs typically include direct materials and direct labor, as they vary with production levels.
2. Analyze each cost provided in the problem: Direct materials used in production are variable costs because they increase or decrease based on the quantity of goods produced. Factory rent expense, salaries of administrative staff, and depreciation on manufacturing equipment are fixed costs, as they do not change with production levels.
3. Relate the classification of costs to inventory systems: Both perpetual and periodic inventory systems calculate COGS, and the classification of costs (variable vs. fixed) remains consistent across these systems. Direct materials are always considered variable costs in COGS calculations.
4. Exclude fixed costs from the classification of variable costs: Factory rent expense, salaries of administrative staff, and depreciation on manufacturing equipment are fixed costs and do not vary with production levels. These costs are not included in the variable cost calculation for COGS.
5. Conclude that direct materials used in production are the most likely to be classified as variable costs in the calculation of COGS under both inventory systems, as they directly depend on the production activity.