In the context of cost of goods sold and inventory systems, a large percentage of the revenue of most firms is spent on which function?

• A. Administrative salaries
• B. Advertising and marketing
• C. Purchasing or producing inventory
• D. Research and development

Answer: (C)

Verified step by step guidance

1. Understand the context of the problem: The question is asking about the function where a large percentage of revenue is spent in relation to cost of goods sold (COGS) and inventory systems. This is a key concept in financial accounting, as COGS represents the direct costs attributable to the production of goods sold by a company.
2. Recognize that COGS is closely tied to inventory systems. Inventory systems track the costs associated with purchasing or producing inventory, which is then sold to generate revenue. This includes raw materials, labor, and overhead costs.
3. Eliminate unrelated functions: Administrative salaries, advertising and marketing, and research and development are important business functions but are not directly tied to the cost of goods sold or inventory systems. These functions are typically classified as operating expenses rather than direct costs.
4. Focus on the correct function: Purchasing or producing inventory is the function where a large percentage of revenue is spent in relation to COGS and inventory systems. This includes acquiring raw materials, manufacturing products, and managing inventory levels to meet customer demand.
5. Conclude that understanding the relationship between COGS and inventory systems is essential for financial accounting, as it impacts profitability, pricing strategies, and financial reporting.