Multiple Choice
Which of the following items is NOT considered a product cost under both perpetual and periodic inventory systems?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which of the following is a direct cost of manufacturing an automobile?
A
Depreciation on factory equipment
B
Cost of steel used in the car body
C
Advertising expenses for the automobile
D
Factory supervisor's salary
Verified step by step guidance1
Understand the concept of direct costs: Direct costs are expenses that can be directly traced to the production of a specific product. In this case, the product is an automobile.
Analyze each option to determine if it is a direct cost: A direct cost must be directly attributable to the manufacturing of the automobile.
Option 1: Depreciation on factory equipment - This is an indirect cost because it is related to the overall factory operations and cannot be directly traced to a single automobile.
Option 2: Cost of steel used in the car body - This is a direct cost because the steel is a material that is directly used in the production of the car body.
Option 3: Advertising expenses for the automobile - This is a period cost and not related to manufacturing. Option 4: Factory supervisor's salary - This is an indirect cost because it is part of overhead and not directly tied to a single automobile.
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