Multiple Choice
Under variable costing, which manufacturing costs are treated as product costs?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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In a merchandising company, cost of goods sold on the income statement reports the:
A
Cost of inventory sold to customers during the period (an expense).
B
Total sales revenue earned from selling inventory during the period.
C
Cost of goods purchased during the period, whether sold or not.
D
Ending inventory on hand at the end of the period (an asset).
Verified step by step guidance1
Understand that the Cost of Goods Sold (COGS) represents the direct costs attributable to the goods that were actually sold to customers during the accounting period.
Recognize that COGS is reported as an expense on the income statement, reflecting the cost of inventory that has been sold, not the total purchases or ending inventory.
Differentiate COGS from total sales revenue, which is the amount earned from selling inventory, and from cost of goods purchased, which includes all inventory bought regardless of whether it was sold.
Recall that ending inventory is an asset reported on the balance sheet, representing the cost of inventory still on hand at the end of the period, not the COGS.
Conclude that the correct description of COGS is the cost of inventory sold to customers during the period, which is an expense on the income statement.
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Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory practice set
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