Multiple Choice
In the context of a merchandising company, cost of goods sold, direct materials, and commissions are all examples of which type of costs?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
Total manufacturing costs include direct materials, direct labor, plus:
A
administrative expenses
B
selling expenses
C
manufacturing overhead
D
cost of goods sold
Verified step by step guidance1
Understand the components of total manufacturing costs. These include direct materials, direct labor, and manufacturing overhead. Administrative expenses and selling expenses are not part of manufacturing costs; they are classified as period costs.
Review the definition of manufacturing overhead. Manufacturing overhead includes all indirect costs associated with production, such as factory utilities, depreciation on manufacturing equipment, and salaries of factory supervisors.
Differentiate between product costs and period costs. Product costs (direct materials, direct labor, and manufacturing overhead) are incurred to produce goods, while period costs (administrative and selling expenses) are related to non-production activities.
Recognize that cost of goods sold is not part of total manufacturing costs. Cost of goods sold represents the expense of goods that have been sold and is calculated after manufacturing costs are incurred.
Summarize the formula for total manufacturing costs: Total Manufacturing Costs = Direct Materials + Direct Labor + Manufacturing Overhead.
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